by Sheila Blackford ©2016 Another law school year is drawing to a close. 3Ls are looking anxiously in the career center for lists of law firm recruiters and scheduled interviews. “What is their billable hour requirement?” 1,800 hours? 2,100 hours?
Wait a minute. How many hours do you have to work in order to bill that many hours? A typical work week is 40 hours a week. 52 weeks in a year. 40 x 52 = 2,080 hours. What about vacation time? Holidays off? How can you have New Year’s Day, Marin Luther King Jr. Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Veteran’s Day, Thanksgiving Day, and Christmas or Winter Holiday. And what about two weeks off to go skiing or camping, or to Disneyland with the kids?
New associates churn the hours and come back late at night to get more billable hours clocked for the month. “Have I met the quota? Have I hit the bonus level?”
Wait a minute. Billables are measured in hours. The pressure to bill hours in six-minute increments leads to logging six minutes but speeding to actually spend four minutes which starts to add up. For example, 60 minutes in an hour, 480 minutes in eight hours billed but in actual time of four minutes worked for six minutes billed would be 40 minutes or 320 minutes worked to generate 480 minutes billed. I know it sounds far-fetched, because we’d usually work on a client matter for 30 minutes and Bill .5 hours. I’m talking about those quick little client tasks, calling and leaving a voice mail message, reading a court notice, spending a quick email.
Senior partners call associates in and tell them their collectible rate is abysmal and their billables again needed to be written down significantly. “Improvement is mandatory or your future at this firm is unlikely.”
Wait a minute. Collectibles are measured in dollars. The senior partner isn’t reluctant to alienate a client with a bill that looks inflated. So hours are written down to match client budgets or the senior lawyer’s awareness of how longish reasonable to spend on preparing a client letter versus a pleading. And then that $1,000 bill goes to the client who may pick up the phone to announce he isn’t paying a dime above $950. So another $50 is written off. The client pays the $950. The associate is dismayed to learn that his six hours billed turned into four hours collected. When he stops to consider he skipped lunch and spent ten hours in the office, things are looking grim. Let’s look at these numbers as ratios. The lawyer worked ten hours, billed for six hours, and collected for four hours. 10:6 billable ratio means he works 1.67 hours for every hour billed. 10:4 collectible ratio means he works 2.5 hours for every hour collected.
Some firms pay the associate a salary and pay a bonus for meeting bonus objectives. What is the bonus based on? The associate isn’t home free. The salary is based on meeting the billable rate. So if you’re not meeting that billable rate, you will likely not last long. It has been said that it takes three years for a law firm to begin making money on an associate. That may be true, but looking up the bar number of the associates at a firm that typically hires three newly admitted lawyers a year, may reveal that maybe one of the three is around for year two. It looks like more firms are quick to cut their losses on an unpromising associate.
Some small firms may try to get a little too clever with compensation programs and run afoul of wage and hour claims by trying to dock a salary in a month following low billable hour achievement. Or trying to play fast and loose with categorizing the associate an independent contractor instead of an salaried employee.
There are federal and state indicia of employment status of a contractor versus an employee. Law firm employers need to be careful and consult with an employment lawyer if any questions. Associates need to be careful and ask questions about expectations about billables and collectibles. And if they have questions, they too may want to consult an employment lawyer.