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Volume I, Issue I |
 ARISTOTLE:
The Premier Pre-law and First Year Law School Preparatory Program and Bar Exam Review
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Law Firm Basics: Partners, Associates and Billable Hours Richard Caira, Esq. Associate - Womble, Carlyle, Sandridge & Rice, PLLC Raleigh, North Carolina Jeffrey Powers, Esq. Intellectual Property Attorney & Registered Patent Attorney Boston, MA Law firms are frequently what the general public (and prospective law students) picture when they think of practicing attorneys. Whether it is because of an individual student's desire to practice in a law firm, or because of the fact that firms generally are more likely to hire and train recent law school graduates, upon graduating from law school, a law student is likely to first practice in a law firm environment. Below we will discuss a number of matters peculiar to the practice of law in a law firm environment. The discussion will serve as a starting point for future articles that will contrast other career options such as practicing for the federal or a state government, or in a corporate environment. Firms vary dramatically in their overall environment and culture. A firm's culture and environment are affected by many factors, including: the nature of the work performed (a high profile corporate law firm that performs corporate mergers and acquisitions will move at a different pace and have different demands than a real estate law firm); the size of the firm (larger firms sometimes tend to be less personal, and a lawyer is more likely to be judged strictly "by the numbers"); and, the personalities of the members of the firm's management (the managing members of the firm may be genuinely interested in an attorney's welfare, or may be self-centered and have little interest in the development of the careers of the attorney). Despite all the variables that differentiate the cultures and environments of law firms, all firms possess some of the same qualities. And whether you intend on practicing in a law firm or not, there are certain matters that you should understand if you are to make an informed decision regarding your legal career. Starting at the beginning Law firms are typically composed of two types of attorneys, associates and partners 1 2. Roughly speaking, partners 3 are the owners of the firm, and associates are non-owner employees. For the most part, partners assume all of the management duties of a firm (e.g., assigning tasks, making hiring decisions, billing clients, obtaining office space and bringing in clients), and associates' main responsibilities involve completing assigned tasks. As a general rule, partners are able to select the work that will take up their time and give more menial tasks to the associates. A partner is likely to spend his time with high profile tasks (appearing in court, speaking at a professional engagement), interfacing with clients (perhaps golfing), and managing the performance of projects. Typically, it is the goal of an associate to achieve the status of partner. Firms vary in the requirements of reaching partner status. The most important aspect of qualifying to become a partner is time (or experience). In fact, associates are often identified by the number years of experience they have (e.g., a first-year associate, a fifth-year associate), and associates are likely to progress toward partnership according to years of experience. The rigidity of the requirements to reach partner depends on a firm's overall culture, and perhaps most directly on the firm's size. Larger firms typically have a specified time for reaching partner (approximately seven to eight years). Another important factor in reaching partner status may be the ability to attract clients to the firm. Firms also vary on the competitiveness of reaching partnership. While at some firms it is expected that if you "last" a specified number of years, you will become a partner, at other firms they may decide that you are not "partnership material" and deny particular individuals the opportunity to reach partner. Billable Hours One can't understand life in a law firm without understanding the meaning of the phrase "billable hours". At its core, a billable hour is a unit of time that an attorney spends working on a client's project (as distinguished from her time spent at work socializing in the halls, organizing her computer, or attending training seminars). However, billable hours are frequently a measure of an attorney's productivity and also the attorney's "value" to the firm 4 . Underlying the use of billable hours as a means to collect revenue for legal services rendered is the fact that law firms frequently determine the price of performing a particular task for a client in terms of how long the task took to complete. That is, when a firm agrees to perform a task for a client (e.g., negotiate and write a contract, sue a competitor for antitrust violations, defend a criminal), it is common to establish a particular rate of pay in the form a specified number of dollars per hour. The ultimate bill for providing services will equal the number of billable hours times a specified rate of pay. However, a partner typically reviews the amount of time spent and determines if the bill is appropriate for the work completed. The number of hours actually billed is referred to, appropriately, as the "billed hours." Because a law firm at its core is a business attempting to make a profit, attorneys employed by a firm are measured according to the billable hours that they accrue during the course of a year. In fact, a firm may require an associate attorney to bill a minimum number of hours. Typical minimums range from 1750- 2001 hours per year 5. Accordingly, when evaluating firms' associate salaries, it is essential to understand the minimum number of billable hours required by the firms, and perhaps bonuses that may result from exceeding the minimum hours. Additionally, it may be necessary to consider whether the firm specifies that an attorney record a specified number of billed hours. The reason for a firm's reliance on billable hours as a measure of an attorney's productivity is largely a matter of convenience for the firm. This is particularly true at large firms. Under such a system, an attorney shows their value by bringing in funds from clients, and by satisfying the clients' expectations. It is assumed that a skilled attorney works efficiently to complete projects, so that her accrued billable hours can all be billed to the client without resulting in an exorbitant bill. Conversely, if an attorney is inefficient at completing a task, it may be necessary to reduce the amount of the client's bill to keep the client happy. It is also important to understand that a stated minimum may be different than the firm's actual expectations; that's where it pays to understand a particular firm's culture regarding the billable hours. While a minimum may be stated, failing to exceed the minimum may impair an attorney's promotions in the firm (i.e., an associate failing to show adequate ambition may not make progress toward partnership). The actual meaning of a stated minimum can range from "our minimum is 2001 hours (wink, wink), but if you don't bill 2300 you're going nowhere," to "we don't have a minimum, honest." Lastly, but not least significantly, billable hours and billing rates have a direct impact on an attorney's salary. It is important to recognize that that the total number of billed hours represents a firm's total gross revenue. From the total collected fees, the firm must pay its own bills. The firm's bills range from rent for office space, to the salaries for employees that do not bill for their time (secretaries, librarians, etc). Therefore, it can be expected that an attorney will only receive a fraction of the revenues gained as a result of her billed hours. There is a rule of thumb regarding the salary expectation of an associate. The associate can expect to receive one-third of the total revenue he or she generates. That is, if the attorney's billing rate is $150/hr, the associate's pay will be roughly $50/hr (or approximately $100,000/yr based on a typical year of 2001 hours billed). The remainder is divided as one-third to the partnership (e.g.,to enhance partner salaries), and one-third to pay for the attorney's overhead costs (e.g., pay for a secretary, office rent, library resource, and malpractice insurance). Conclusion While overall happiness (or contentment) at a law firm depends on numerous factors, understanding the underlying law firm dynamics is essential to having reasonable expectations. Beginning with your first summer legal job, observe the law firm dynamics, understand the firm's environment and culture, and begin to identify your likes and dislikes. Remember that unlike any other profession, your efforts (especially when measured by the hour) are directly tied to your income. And it is easy to allow your quest for one more billable hour to get in the way of the rest of your life. Chose a firm that fits your lifestyle, whether it is laid-back or hard-driving. About the Authors Richard Caira is an associate in the Raleigh, North Carolina office of Womble, Carlyle, Sandridge & Rice, PLLC. Mr. Caira's practice is focused primarily on trademark prosecution, opposition and litigation, as well as technology and software licensing, copyright law, and computer law. He graduated in 1998 with a law degree from the Franklin Pierce Law Center, located in Concord, New Hampshire, and he earned his undergraduate degree in English in 1991 from Flagler College, in St. Augustine, Florida. Jeffrey Powers is a 1998 graduate of the Franklin Pierce Law Center located in Concord, New Hampshire. Prior to entering law school Mr. Powers was an optical design engineer at the Welch Allyn Corporation located in Skaneateles, New York. Upon graduation from law school he worked as a patent and trademark attorney for Wolf Greenfield and Sacks, LLP of Boston, Massachusetts counseling a variety of clients involving large corporation and global start-up companies. Jeff is a founding member of LearningLaw, LLC. 1. There are also the mysterious "of counsel" attorneys. The title "of counsel" applies to attorneys employed by law firms that are neither partners nor associates. "Of counsel" attorneys are typically experienced attorneys who perform specialized tasks for the firm and its clients. While they are employees of the firm, they neither fit into the classification of partner (i.e., manager/owner) nor associate. Semi-retired former partners frequently fit into the category "of counsel", as do part-time experienced attorneys. 2. In addition to employing attorneys, firms are also likely to employ non-attorneys to perform some of the firms' work. Non-attorneys employed by a law firm will likely include secretaries, paralegals, library staff, docketing staff and marketing staff. The number and types of non-attorneys varies with the size of the firm and the resources that the firm's management decides to include within the firm. 3. Partner is the typical term used to refer to owners of a law firm. However, the term "partner" implies that the firm has elected to organize as a partnership. Other names may be used to describe the owners of a firm, such as "shareholder", in the event that the firm is operated as a professional corporation, or "member", if the firm is operated as a limited liability company. 4. While law firms measure attorney productivity by billable hours, other organizations, such as governments or corporations, have other means of measuring productivity. Other means may be based on time spent on tasks (or the number and nature of tasks accomplished), but because a paying client does not receive a bill for services based on measured units of time, they are typically not referred to as billable hours. 5. 2001 hours per year equals 40 billable hours per week for 50 weeks, and 2 weeks vacation. Note that some firms don't have minimums, but rather have "expectations" for a certain number of billable hours. |
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