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| Steven Lerner covers legal technology for Law360 Pulse |
Yes, generative AI is edging its way into the legal field, but before we assume that this technology will kill the billable hour, let's remember that previous predictions of its demise have been off the mark every single time.
More law firms are turning to generative AI to conduct legal research, create the first draft of documents and meet other needs. As promising as this tech is, its true impact is still uncharted.
While AI might change the long-standing business model that law firms have relied on, it's way too early to assume that it will cause the death of the billable hour.
Law firms are doing well financially under the current model of the billable hour and generative AI technology has some flaws.
Still, this hasn't stopped some legal professionals from declaring the inevitable demise of the billable hour due to generative AI.
In recent surveys, many confidently predicted a decrease in the billable hour because of AI. Sixty percent of legal professionals expect AI-driven efficiencies to reduce the prevalence of the billable hour, according to Wolters Kluwer's 2024 Future Ready Lawyer Survey Report in October. Looking deeper at these results, about two-thirds of lawyers in corporate legal departments convey this expectation, compared to 55% in law firms.
Other recurring annual surveys also suggest that AI can extinguish the current business model.
Legal tech giant Clio released its annual Legal Trends Report survey in October, and this time it included predictions about AI.
Clio's 2024 survey found that 74% of hourly work in the legal industry could be automated, including 57% of hourly work performed by lawyers. The survey also said that flat-fee work has increased 34% since 2016.
In a survey from LexisNexis Legal & Professional in September, nearly 40% of private practice lawyers in the U.K. and Ireland said they expect to adjust billing practices because of AI. Seventeen percent foresee AI causing firms to abandon the billable hour.
While enthusiasm for AI's potential in the legal field is understandable, it's easy to overlook the complex realities and limitations that come with it.
Many of these surveys are backed by vendors that sell generative AI-driven products. With a vested interest in painting generative AI as the future of the legal field, they might be eager to spotlight data hinting at its potential impact.
In other words, the push to make it sound as if generative AI will end the billable hour comes with a hefty dose of marketing spin.
Beyond the vendor-driven hype, the biggest reason why it's too early to say that generative AI will kill the billable hour is economics.
Law firms are seeing more revenue than ever, and thriving under a model that's proved successful. In August, Wells Fargo Private Bank reported that U.S. law firm revenue increased 11.4% during the first half of 2024, one of the strongest first halves in recent years.
With growing revenue, there's little incentive for law firms to overhaul their business models in a way that could disrupt profits. It would be a gamble for law firms to dismantle the billable hour when the current model is working well.
Demand and lawyer productivity also increased during this period, according to an August survey from Citi Global Wealth at Work. On the partner level, an October survey from recruiter Major Lindsey & Africa LLC found that compensation at the 200 largest U.S. law firms increased by 26% in the past two years.
As a result, Law360 Pulse's 2024 compensation report found that 35% of survey respondents have seen billable hours increase over the past year.
Unless law firms start losing money, there's no reason to change the status quo.
Finally, generative AI itself is still a work in progress.
Generative AI systems can sometimes confidently produce false results, which is a phenomenon known as hallucination. Data privacy and security concerns also loom large.
Katherine Forrest, chair of Paul Weiss Rifkind Wharton & Garrison LLP's digital technology group, told Law360 Pulse in March that generative AI can bring great efficiencies to law firms and could potentially destroy the billable hour someday. However, Forrest said this won't come yet because "there's some problems right now in terms of confidentiality and accuracy."
Generative AI is fantastic and holds great potential for lawyers. But until these issues are resolved, it's too early to declare the death of the billable hour.
--Additional reporting by Xiumei Dong, Matt Perez, Ashish Sareen, Aebra Coe and Hannah Albarazi.
Law360 is owned by LexisNexis Legal & Professional, a RELX company.
Technically Speaking is a column by Steven Lerner. The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media Inc. or any of its respective affiliates.
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