Are Lawyer Billing Rates Too High? Part 1

In BigLaw, with annual salaries for first-year associates at most firms over the $200,000 mark, with senior associates making more than $400,000 a year,[i] and with equity partners raking in millions of dollars annually,[ii] it’s no wonder that most people see a legal career as being lucrative—and why many harbor ill will toward attorneys for the money they make. But before the point can be made that lawyers are greedy scoundrels and that attorney fees are exorbitant, one must consider:

1. The ancillary costs to sustain a law practice are significant. Expenses typically include administrative support—perhaps a receptionist, secretary, paralegal, or some combination of the three—; technology and tech support; marketing; office space; and costs to maintain this space (though the paradigm of maintaining dedicated physical space is changing due to COVID and the prevalence of working from home).
2. Matters like bar membership and continuing legal education are needed to stay active and abreast of professional developments, and require an outlay of money. Clients are paying for not only an attorney’s time, but for his/her professional licensure and subject matter expertise.

As for individual billing, attorneys generally can set their own fees and billable rates (but not in certain situations where attorney fees are set or restricted by federal or state law.)[iii] The only guiding principle is that fees must be reasonable and not excessive. Factors impacting what’s considered “reasonable” include time spent, the novelty and difficulty of the matter at hand, expertise, what services normally cost in the area, and demand.[iv]

Nonetheless, attorneys’ billable rates can be high—many would argue too high—and continue to rise. Is this course feasible?

Where We Are

Americans spend a lot of money per year on legal services. In 2021 alone, between businesses and individuals, various sources put the amount spent on legal fees between $320 billion[v] and $359.5 billion, which accounts for almost 40% of the global legal services market.[vi] And amid demand, Am Law 100 firms increased their billing rates 5.6% in 2021 and are expected to raise rates between 6% and 7% in 2022.[vii] Among six Atlanta firms surveyed earlier this year, rate increases were reported to be 12%.[viii]

Some other eye-opening statistics:

• An incredible 52 U.S. law firms surpassed $1 billion in gross revenue in 2021; further, 15 firms exceeded $2 billion and five firms exceeded $3 billion.[ix] (By the way, Kirkland & Ellis led the way with $6.042 billion in gross revenue.)[x]
• The average rate at which attorneys billed as of January 2021 was $300 an hour.[xi] Also, experience level and geography determine what you will pay for legal services. Less experienced lawyers and lawyers in smaller towns may fall in the $100-200 an hour range.[xii] The average high hourly rate, as of 2021, may be as much as $550 in Illinois and over $400 in states like California, DC, New Jersey, New York, Pennsylvania, Texas, and Virginia.[xiii]
• Several esteemed lawyers and experts in their field have crossed or are approaching the $2,000 an hour billing threshold. Hogan Lovells partner and former acting U.S. Solicitor General Neal Katyal tops the list at $2,465 an hour. The highest hourly billing rate for certain partners at Latham & Watkins is $2,075, and many other firms—including Kirkland & Ellis, Simpson Thacher & Bartlett, Boies Schiller Flexner, and Sidley Austin—have partners who exceed the $1,900 an hour mark.[xiv] Covington & Burling may charge as much as $2,500 an hour for advising a Ukrainian company as it looks to recover damages from Russia for harm caused by Russia’s ongoing military operations in Ukraine.[xv]

Even though not all attorneys earn outrageous salaries and bill at extraordinary rates—high paying BigLaw positions are generally reserved for students who graduated from top law schools or at the top of their class (or both)—the average salary for all lawyers as of May 2021 still was $148,030 a year.[xvi] And this accounts for lawyers making modest salaries in states with lower costs of living and in smaller cities or towns.

Options Moving Forward

So, is it sustainable for Americans to spend and for attorneys to make this kind of money? What alternatives exist to keep spending for legal services in check? We will review various options next week.

[i] Weiss, D.C. (2022, March 1). After Davis Polk sets new bar for associate raises, Cravath ups the ante. ABA Journal. https://www.abajournal.com/news/article/after-davis-polk-sets-new-bar-for-associate-raises-cravath-ups-the-ante

[ii] Strom, R. (2022, March 24). Profits Spike, Partners Ponder: Cash Out or Make a Fortune? Bloomberg Law. https://news.bloomberglaw.com/business-and-practice/profits-spike-and-partners-ponder-cash-out-or-make-a-fortune

[iii] USLegal. (n.d.). Statutory Fees. https://attorneys.uslegal.com/attorney-fees/types-of-fee-arrangements/statutory-fees/

[iv] American Bar Association, Rule 1.5. (2020, April 14). https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_5_fees/

[v] Henderson, B. (2022, January 23). Eight updated graphics on the US legal services market. Legal Evolution. https://www.legalevolution.org/2022/01/eight-updated-graphics-on-the-us-legal-services-market-285/

[vi] Grand View Research. (n.d.). Legal Services Market Size, Share & Trends Analysis Report By Services (Taxation, Real Estate, Litigation, Bankruptcy, Labor/Employment, Corporate), By Firm Size, By Provider, And Segment Forecasts, 2022-2030. Report Overview. https://www.grandviewresearch.com/industry-analysis/global-legal-services-market

[vii] Maloney, A. (2022, February 24). Billing Rate Increases Prompt Lateral Movement Throughout Am Law 200. Law.com. https://www.law.com/americanlawyer/2022/02/24/billing-rate-increases-prompt-lateral-movement-throughout-am-law-200/

[viii] Polacheck, J. (2022, August 18). Billing Rates at Atlanta Law Firms Are Surging. Law.com. https://www.law.com/dailyreportonline/2022/08/18/billing-rates-at-atlanta-law-firms-are-surging/

[ix] Law.com. (2022, April 26). The 2022 Am Law 100: Ranked by Gross Revenue. https://www.law.com/americanlawyer/2022/04/26/the-2022-am-law-100-ranked-by-gross-revenue/

[x] Ibid.

[xi] Miki, S. (n.d.). Lawyer Statistics for Success in 2022. Clio. https://www.clio.com/blog/lawyer-statistics/

[xii] Thervo. (2022). How Much Are Attorney Fees? https://thervo.com/costs/attorney-fees

[xiii] Contracts Counsel. (2021, August 23). Average Cost of a Lawyer. https://www.contractscounsel.com/b/average-cost-of-a-lawyer

[xiv] Strom, R. (2022, June 9). Big Law Rates Topping $2,000 Leave Value ‘In Eye of Beholder.’ Bloomberg Law. https://news.bloomberglaw.com/business-and-practice/big-law-rates-topping-2-000-leave-value-in-eye-of-beholder

[xv] Thomsen, J. (2022, June 8). Covington law firm discloses $2,500 top hourly rate in new Ukraine contract. Reuters. https://www.reuters.com/legal/legalindustry/covington-law-firm-discloses-2500-top-hourly-rate-new-ukraine-contract-2022-06-08/

[xvi] U.S. Bureau of Labor Statistics. (2022, March 31). Occupational Employment and Wages, May 21. https://www.bls.gov/oes/current/oes231011.htm