Lawyer Rates and Arrangements

A new American Bar Association ethics opinion touches on what has been a risky business area for Big Law in the emergence of generative AI: billing and fees related to AI-supported legal work.

Amid unprecedented billing rate hikes and an escalation of the battle for rainmaking talent, Am Law 100 law firms again raised the stakes on partner pay last year. At the same time, the average spread among Second Hundred firms fell a bit.

Last year saw a "staggering" jump in the number of law firm leaders who said they wanted to increase their nonequity tier going forward. Now it's clear many of the biggest Big Law players are following through, with several Am Law 100 firms growing their income partner ranks by double-digit percentages in 2023.

In a quest to maximize profitability, Am Law 200 law firms have grown their share of business tied to contingency fees, a gamble that has paid off for some firms in recent years.

While some firm leaders pointed to market factors such as economic uncertainty, most indicated that declining realization rates were a price they were happy to pay in exchange for several years of strong rate increases.

The ultimate guardian of the quality of client service is the partners' own judgement but properly utilizing AI can set expectations that will benefit the clients and the firm and end forever the "End of the Billable Hour" stories.

Generative AI, combined with client education, could signal the slow death knell of the billable hour.

Having a compensation system that clearly outlines partner expectations, provides the partners with the ability to validate the results by communicating the results back to them does more to build collegiality than an opaque system that, by its design, promotes distrust and ill will among partners.