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How law firms work with fixed-fee billing and the four-day week

28 Apr 2022

| Author: Rod Vaughan

As we discussed in the last issue of LawNewsfirms have been converted to the four-day week while others have abandoned billable hours in favour of fixed fees subscription charging and other forms of remuneration. This week we speak to several lawyers from around New Zealand who tell broadly similar stories about the stress of keeping their businesses afloat during the chaos of lockdowns and the strategies they employed to look after their staff and clients.

Jacqui Owen, director of Jacqui Owen Legal in Morrinsville, was an early adopter of a four-day working week when covid first struck. “Two years ago, I looked at my staff and our collective work-life balances. The hours were insane, as they are for all lawyers and their support staff. But it wasn’t the hours or the workload that was the issue; rather, it was that all of us felt time-poor,” Owen says. “Everyone had families, partners, sport, community interests that they wanted, and needed, to be available for, and the issue was that all this tended to fall on the Saturdays and Sundays and left no actual recuperation time for anyone.” So, Owen decided to do something about it and after studying how some large law firms operated four-day weeks she came up with a formula for her practice. By hiring an extra staff member she could let everyone work four days a week from 8am to 6pm with a half-hour lunch break. “We began with a system of rolling days off and you could choose if you wanted a Tuesday, Wednesday or Thursday, provided at least one other person was in the office at the time,” she says. “After six months we decided this didn’t actually work that well. As we are such a small team, it meant there was never a time where we were all in the office together and collegiality was just not the same.” As a result Owen decided everyone would work from Tuesday to Friday, giving them a three-day weekend. “Clients have accepted this exceptionally well and my staff love it. Every weekend is a three-day weekend so they book haircuts, doctors’ appointments, physio appointments, coffee dates, whatever they want to for a Monday. “Other law firms seem to think I am either crazy or just not busy or successful enough to need to open for five days, but I can assure you we are a very successful and very busy wee firm.  “The reality is I place huge value on family life, on flexible work arrangements and on work being a part of your life, not the sole focus of it. There has not been a cost-saving aspect to this. The entire motivation was for the mental wellness of myself and my staff and an acknowledgement that the work we do is hard and mentally taxing.” Owen’s progressive thinking has also led her to shun billable hours. “We do almost 100% fixed-fee billing. I think clients like the certainty,” she says. “We long ago decided that we were not a firm competing on price. We were offering a service and clients are either happy to pay for what we offer or they are not. “There is very little work that comes through the door that one of us has not seen before so gauging estimated time and complexity is not that difficult.  “Sometimes clients want to chat and fill us in on their lives and I don’t think they should be charged for that on a minute-by-minute basis. That’s not the firm I want to own and it’s not the experience I want to give my clients. But for many other lawyers billable hours are still largely the name of the game.

Alternative arrangements

MinterEllisonRuddWatts partner Stacey Shortall told LawNews that hourly billing “is not going anywhere anytime soon”. “In fact, I expect the billable hour will remain a mainstay of the legal industry. But, like many others in our industry, I have increasingly used billable hours as the basis for alternative arrangements, especially where the volume of the legal services required can reasonably be predicted.” Shortall says fixed or flat fees remain popular with clients when a pre-determined fee can be fairly agreed.  “This type of approach works best when there is certainty around the nature and volume of legal work required. So they are often a better fit for repetitive or relatively simple legal services. “Capped arrangements, where clients agree a fee cap or limit, can also help provide price transparency up-front.  “Similarly, blended hourly rates, where one or several hourly rates is applied regardless of which lawyer provides the advice, can be useful when the seniority of the lawyers needed to work the file can be anticipated. “I have also had an uptick in subscription-based fee arrangements where clients pay a recurring monthly or annual fee to access particular services.” Shortall says other fee arrangements can be particularly useful in encouraging clients to measure the value that lawyers add for them. “Most, if not all, clients would rather pay for results than process. “So a fixed or flat fee that seeks to measure value can be very helpful, as can a predetermined success payment that is similarly tied to value. But given the nature of the instructions that I typically receive, I have not personally really used these types of arrangements.” Shortall believes clients want alternative arrangements and are seeking more value for their spend. “Providing excellent advice no longer suffices. Instead, advice needs to be coupled with outstanding client service, a deep understanding of the client’s business, a values or cultural alignment with what matters to them and a strategic mindset,” she says. “In my experience, clients do not expect to pay for these components. Rather, they need to see them reflected in the advice that is provided. Lots of work needs to happen outside of hourly billables to ensure this happens.” Shortall says price transparency and predictability were more important than ever during the early days of the pandemic. “Clients in the hardest-hit sectors, like tourism and hospitality, unsurprisingly needed even greater certainty around their current and anticipated legal spend. “More regular interim billing, either by work phase or shorter time periods, was something that I used at the time. Some clients sought temporary pricing or payment relief. But most just wanted to understand a broader range of alternative fee arrangements like those outlined above.” But what of the other pressures covid has imposed on the working patterns of lawyers, such as being required to work from home and four-day working weeks?

Shortall sees merit in both scenarios but with several caveats. “I have long thought of work as something that I do rather than somewhere that I go. So I did not find the concept of working from home particularly difficult. “The challenge during lockdown and other isolation periods was that my home was also filled with five children attempting, with varying degrees of success, to learn online. “The blurring of my work and their learning environments made it difficult to put in boundaries and impose limitations on my availability to them. “So I found myself largely scheduling client zooms around their eating and break schedules, attending team calls with at least one child in view, and working on my laptop while they slept at night. Some days this was easier than others.” Shortall says there were other disadvantages from working from home as well. “While it was relatively easy for lawyers who were already working together to continue doing so remotely, introducing new [hires] to the team was more difficult.  “Despite best efforts, virtually integrating into a team as a new starter is hard. “Remote working also made it harder to identify if someone was struggling and needed help. It also is my view that solely working from home has the potential to jeopardise firm culture and the ability of lawyers to learn,” Shortall says. “Zoom or Teams calls are no great substitute for face-to-face discussions or the impromptu conversations that enable relationships to be forged. “I learned so much in my early years from being around more experienced lawyers and observing what they were doing. This type of learning, almost by osmosis, simply cannot be replicated virtually.”

Shortall says several lawyers in her team were already working from home several days a week long before covid came along.

“We have always had a predominantly office-based culture that also enabled flex working. This is because flexibility has always helped attract and retain diverse talent, especially working parents. “When my children were younger, I also worked a four-day week in the office and one day at home. I found this great. It enabled me to have a day when I knew I could do the school or kindy run without the risk of getting stuck in the office.” Because of her current caseload she no longer does this but remains a big supporter of any alternative work schedules that enable more diverse lawyers to work in the industry.

Sensible approach

Deena Himpers, practice manager for Sharp Tudhope Lawyers in Tauranga, told LawNews the last two years have been tough. “I’m pleased to say that our team has faced the challenges of covid-19 head-on and I’m proud of how we have pulled together and kept the wheels turning.  “We have continued to meet our clients’ needs and many staff have gone above and beyond during that time.”  Himpers says working from home has become the norm for many of them. “It has also been good to see a sensible approach taken to being sick.  Seeing people soldier on when unwell is a thing of the past. If someone has a mild illness, they feel supported to continue to work at home and sick leave is used for anything more serious.  “Mental health has been front of mind and staff who felt uncomfortable or are immune compromised have been offered the option of working from home during the Omicron wave. “We are, however, creatures of habit and many of our staff have preferred to remain in the office where we can communicate face-to-face.” Himpers says a four-day working week is not on the firm’s agenda. “While this may sound appealing, the reality is that our clients expect our advice five days a week and often require advice overnight. Our core focus remains to meet client needs in a timely manner.” Last year the firm celebrated 125 years in business but Himpers says celebrations were scaled back as a result of covid. “Unfortunately, plans to hold a large-scale celebration event were dashed two weeks out, but we were able to pivot to an online celebration instead. “We considered how we could give back to the community in which we have flourished and donated $10,000 each to two local charities. “This year we have decided to introduce a $10,000 scholarship to be awarded to a budding law student from the region and we are looking forward to the launch in July.

“There is much to be proud of and look forward to. The key is to stay connected, take care of your staff and remember that people are at the heart of everything we do.” ■

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