Ethical Issues Posed by Time-Based Billing in Law Firms

By Zachariah Schafferius


The system of ‘billable hours’ remains the most common method of payment for legal services in Australia, despite attracting significant criticism from both inside and outside the legal industry.[1] This system has been widely criticised for placing too much pressure on lawyers, as it measures their output by the time they spend at work, rather than the outcome of their efforts.[2] This encouragers lawyers to engage in unethical conduct, by overcharging clients for work done in order to meet billable hour targets.[3] This system also creates an atmosphere of stress and competitiveness within law firms, as lawyers are overworked for prolonged periods of time, which has also raised serious concerns in the legal industry about the ethical issues caused by the billable hours system.[4]


The adoption of the billable hours system originated in the 1960’s; this system of billing was intended to provide clients with greater transparency about the services which they were being charged for and to measure the efficiency with which a lawyer carried out their job.[5] The consequence of this system has been that lawyers’ performance in the workplace is now assessed primarily by the amount of time they spend working which they are able to bill clients for.[6]


This system has attracted criticism from clients, as it does not allow lawyers to predict the fees which will be charged for the services they provide.[7] Recently, the global economic downturn during the late 2000’s has lead to increased pressure from business clients for lawyers to provide services at a pre-determined price.[8]

Despite this, the billable hours system continues to be used by the vast majority of large and medium firms in Australia, with some 86% of solicitors in Queensland reporting that they have a billable hours target which they are required to meet as part of their job.[9]


There are various mechanisms in place to ensure that clients are not over-charged in Australia for legal services.  Most notably, section 308 of the Legal Profession Act 2007 (Cth) requires solicitor to disclose how fees are to be charged and inform clients to seek independent legal advice about solicitor’s fees.[10] Solicitors are also required to provide clients with information about the basis upon which fees are to be calculated and an estimate of the total fee which will be billed to the client.[11]


Despite this safeguard, there is widespread concern in the legal industry that the billable hours system leads to lawyers over-charging clients and creates an unhealthy work environment within law firms.[12]


Various legal professionals have openly criticised the culture of over-charging and the associated ethical issues which have become increasingly prevalent due to the billable hour system.[13] Chief Justice James Allsop of the Federal Court of Australia summarised the ethical issues which arise as a result of the conflict the billable hours system creates between the economic pressure on a firm to maximise its profit and the ethical pressure on lawyers to work in their client’s best interest: ‘Only a very slight change of focus needs to be made by a lawyer to change from (a) expecting a profitable return from running as well and efficiently as possible a large case in court, to (b) planning how to make as much money as possible from running the same large case in court.’[14]


The professional nature of legal work requires lawyers to focus primarily on serving their client’s interest. They are required to act with integrity and adhere to professional ethics as they advise and represent their clients.[15] The Legal Profession is inextricably tied to the administration of justice – a lawyer is by the nature of their profession an officer of the court in addition to being a businessperson. Consequently, whilst lawyers and firms must compete in a market like other businesses, they also must act within the confines of laws and regulations governing the conduct and ethics of legal professionals, which ensures that legal professions are prevented from operating as businesspeople.[16]


However, as a business, the primary concern of law firms is to generate a profit. In order to remain competitive within the legal industry, law firms cannot charge higher fees than other firms who are able to perform the same work for a lower rate. Consequently, the alternative way for firms to increase their revenue is to maximise the number of hours of work which their employees can charge to their clients.[17]


This has resulted in most firms adopting a model where lawyers are require to meet a minimum target number of billable hours.[18] The reality of this business model is that lawyers are driven to ‘pad’ their timesheets in order to meet the billable hours requirement of their job.[19] Examples of ‘padding’ include lawyers charging multiple clients for a single task or overstating the time taken to complete a task. The result is that clients are over-charged for work completed by lawyers.[20]


The unethical consequences of this system have lead to a general feeling of suspicion and mistrust for legal practitioners amongst clients and the broader community.[21] This compromises the integrity of the legal profession, as lawyers struggle to uphold their role as a trusted advisor to their clients.


Several professional bodies have criticised the billable hours system as an ineffective way to measure the value of work completed by lawyers. The American Bar Association’s Commission on billable hours noted that ‘the billable hours [system] is fundamentally about quantity over quality, repetition over creativity. With no gauge for the intangible, such as productivity, creativity, knowledge or technological advancements, the billable-hour model is a counter-intuitive measure of value.’[22]


The pressure for lawyers to maximise the amount of billable hours they can charge to a client effectively discourages lawyers to complete work in a more efficient manner and to find ways to reduce the time work processes take.[23]As lawyers are judged by the number of hours they work, they may not be rewarded for dealing with matters and completing tasks more efficiently.


This further evidences that the billable hours system facilitates law firms acting in pursuit economic gain whilst compromising the professional obligation of lawyers to act in their clients’ best interests.





The emphasis which the billable hours system places on the quantity of time which lawyers must spend working has been attributed as one of the leading causes of stress, anxiety and depression amongst lawyers.[24]


This system encourages lawyers to work increasingly longer hours in order to meet billable hours targets and to measure their productivity in terms of ‘hours worked’ against their colleagues. This creates an atmosphere of competitiveness and mistrust between lawyers in a firm where they are also often expected to work as a team for the same client.[25]


In addition to creating a negative and unpleasant work environment, the emphasis placed on the sheer volume of time a lawyer can spend working inevitably detracts from all other aspects of their lives. Many large and mid-tier law firms in Australia require lawyers to bill, on average, six hours per day. It is generally accepted that approximately 60% of the hours spent at work will be ‘billable’, and so in order to achieve six billable hours, lawyers must be working non-stop for a minimum ten hours per day, without taking breaks, meetings or telephone calls into account.[26] The effect of this is that lawyers generally experience a significant decrease in their quality of life, as they have less time for lawyers to sleep, exercise, socialise and to spend time with their families.[27] For a prolonged period, this has been shown to create a highly stressful work environment and often leads to depression and substance abuse[28] amongst lawyers.[29]


Long hours and continuous stress also affects the ability of lawyers to think critically and impairs their overall cognitive ability. As a result, the quality of the legal services provided to clients is impaired, as legal professions struggle with large workloads.[30]


The overall effect of the billable hours system evidently poses a serious ethical issue, as many legal practitioners across the profession experience a significant decrease in their quality of life, which affects both their mental health and their capacity to perform in the workplace.




The American Bar Association has noted that ‘alternatives that encourage efficiency and improve processes not only increase profits and provide early resolution of legal matters, but are less likely to garner ethical concerns.’[31]


The primary issue which clients raise in relation to the billable hours system is that it does not allow clients to predict the legal fees with certainty. Consequently, alternative methods of billing must focus on the outcome of the work provided by lawyers, rather than the volume of time which has been spent achieving this outcome.[32] Similar transitions from time-based billing to output-based billing have been achieved in other industries such as marketing, consulting and accounting, which indicates that a similar transition in the legal industry is a feasible objective.[33]



There has been a growing shift away from the billable hours model to a value-based model of billing, and several alternatives are becoming more readily available.


For example, there has been a gradual shift towards lawyers charging flat fees for services provided to clients. This allows lawyers to present clients with an up-front price for their services, and reduces the risk of unethical conduct as there is little opportunity for lawyers to overcharge clients.[34]


A system of charging predetermined flat fees for legal services can been complemented by ‘contingency’ fees. The nature of the legal profession is that the work lawyers do depends on a range of variable factors.[35] In order to accommodate for this, many firms provide clients with a list of additional fee prices which may apply in different scenarios as a legal matter progresses. This provides law firms with the ability to charge for additional services provided if required, but provides a pre-determined cost for clients. [36]


Time-based billing may not be entirely obsolete, as it provides advantages such as transparency for clients about what they are being charged for and allows firms to be compensated for extra or unexpected work which their employees complete.[37]

However, the emphasis which is placed on time-based billing should be reduced and integrated with up-front legal costs which provide clients with greater certainty as to the extent of their legal fees and prevent ethical issues in relation to billing from continuing to comprise the integrity of the legal profession.[38]





As a law student, there are several issues which the ‘tyranny’ of the billable hour present which discourage me from seeking employment in a large or mid-tier firm where the ‘billable hours’ are the primary method for charging fees.


The most concerning issue relates to the unhealthy pressure present in these workplaces to meet a billable hours requirement. The attractive aspects of a legal career, such as a comfortable salary, an engaging and challenging professional career and the vast opportunity for career progression do not seem to outweigh the poor quality of life which many lawyers endure.


High stress levels, and the risk of mental illness are extremely prevalent in the legal industry.[39] However it seems that hard work, and working efficiently may not alleviate these problems. As I have noted above, the billable hours system requires lawyers to spend prolonged periods of time at work. There seems to be little incentive for lawyers to continue to find ways to work more productively, so long as they are completing tasks within a similar timeframe to their colleagues. Emphasis is not placed on work which is of a high standard, but the amount of time spent in the office. To a prospective lawyer, this seems to be an unrewarding and unappealing work environment.


It is difficult to find a solution to countenance this issue; graduate-level lawyers have little to no ability to change the way a law firm charges its legal fees. However, for law students who wish to work in the field of corporate law, the best path for career progression is to find employment in a large or mid-tier law firm.[40] Graduate positions in large and mid-tier firms are extremely competitive, and consequently individual law students have little choice but to accept the way in which law firms are run and charge their clients if they wish to remain employed.


Furthermore, the widespread practice of ‘padding’ timesheets is an undesirable feature of a potential career in the law. The unethical nature of this contradicts the fundamental values which govern the legal profession, which promote ethical conduct, adherence to the law and to making actions in good faith.


Aside from the benefits commonly associated with any professional occupation, such as a comfortable salary and a fulfilling career, there are several attractive elements which provide incentives for students to study law. These include the opportunity to act as an advocate for clients, to be a part of the legal system which protects the rules and laws which govern society and the notion that the law is a ‘noble’ profession which provides practitioners with the ability to help others and find meaning in their work. This is directly comprised by the pressure for lawyers to primarily focus on their firm’s economic interests through billable hours targets, which significantly detracts from the appealing aspects of the Legal Profession.




The ethical issues which arise as a result of the ‘billable hours’ method of charging legal fees has been shown to significantly undermine the integrity of the legal profession. Through the adoption of alternative billing methods, this integrity can be restored. The result of this would improve the trust which clients and the wider community have in the legal profession and reduce the conflict between the economic interests of a law firm and the ethical responsibilities the legal profession places on practitioners.



[1] Joanne Bagust, ‘The Legal Profession and the Business of Law’ (2013) 35(27) Sydney Law Review 27.

[2] Katherine L. Brown and Kristin A. Mendoza, ‘Ending the Tyranny of the Billable Hour: A mandate for change    for the 21st Century Law Firm’( 2010) 51(2) New Hampshire Bar Journal 66, 67.

[3] Gemma Mitchell, ‘References to the Kendal Report’ (2013) 40(9) Brief 37, 39.

[4] The Law Society of Western Australia, Report on the Psychological Distress and Depression in the Legal Profession, (2010).

[5] Brown and Mendoza, above n 2, 70.

[6] Ibid.

[7] LexisNexis, ‘Whitepaper May 2009’ (May 2009) <>.

[8] ibid.

[9] Christine Parker and David Ruschena, ‘The Pressures of Billable Hours: Lessons from a Survey of Billing Practices Inside Law Firms’ (March 18 2011) <>.

[10] Legal Profession Act 2007 (Cth) s 308.

[11] Ibid.

[12] Joanne Bagust, above n 1, 27-31.

[13] Ibid.

[14] James Allsop, ‘Professionalism and commercialism – conflict or harmony in modern legal practice?’ (paper presented at the Australian Academy of Law Symposium Series, 5 May 2009), 14.

[15] David Blades, ‘Lawyers, Billable Hours and Professionalism’ (2013) 40(9) Brief, 17.

[16] Parker and Ruschena, above n 9.

[17] LexisNexis, ‘An Investigation of the Billable Hour’ (4 October 2012) <>.

[18] Brown and Mendoza, above n 2, 69.

[19] Peter Geraghty, American Bar Association Centre for Professional Responsibility, ‘When two plus two doesn’t equal four’ (June 2007) <>.

[20] Misa Han,  ‘Billable targets encourage creative time sheets’,  The Australian Financial Review (online), 12 December 2014 <   sheets-20141211-125f9d>.

[21] LexisNexis, above n 13.

[22] Brown and Mendoza, above n 2, 68.

[23] Parker and Ruschena, above n 9.

[24] LexisNexis, above n 13.

[25] The Law Society of Western Australia, Report on the Psychological Distress and Depression in the Legal Profession, (2010).

[26] John Chisholm, ‘What are the client’s expectation of Australian lawyers – the end of the billable hour?’(paper presented at 36th Australian Legal Convention, Perth, 17 December 2009).

[27] Misa Han, ‘Hourly billing causes stress in legal firms,’ The Australian Financial Review (online) 2 July 2015 <>.

[28] Brown and Mendoza, above n 2, 69.

[29] Mitchell, above n 3, 42.

[30] The Law Society of Western Australia, above n 21.

[31] LexisNexis, above n 13

[32] Blades, above n 9, 12.

[33] Ibid, 14.

[34] Joanne Bagust, above n 1, 33.

[35] Brown and Mendoza, above n 2, 68-70.

[36] Brown and Mendoza, above n 2, 71.

[37] LexisNexis, above n 6.

[38] Ibid.

[39] LexisNexis, above n 17.

[40] Yale Law School, ‘The Truth about the Billable Hour’ (May 2015) <>.