Fighting the Hypothetical: Why Law Firms Should Rethink the Billable Hour in the Generative AI Era

Abstract

As the legal profession continues to grasp the contours of how generative artificial intelligence (GenAI) will change the practice of law, it is already well-versed in many of the ethics issues involved in using GenAI to assist in legal work.  It is significantly less well-versed in the financial effect of GenAI on the standard pyramid model of law firm structure.  That pyramid model, which is based primarily on the billable hour method of compensation, leverages junior associates to perform routine work.  The pyramid narrows with each level of professional performing more sophisticated work:  many associates at the bottom, fewer associates in the middle, and fewer still partners at the top.  But because GenAI currently can perform many tasks at the level of a first-year associate (and will get better at tasks)—in fractions of the time that a first-year associate would take—that pyramid model may no longer make sense.  Our article suggests that law firms should rethink how they measure the value of the work that they deliver to their clients and that such rethinking will likely move many firms away from the pyramid model.  As part of our article, we’ve interviewed several industry leaders who are currently wrestling with the effect of GenAI on their business models.  Ultimately, we suggest that law firms should spend more time on those tasks that require human insight and less time on those tasks that GenAI can do well—and that they should find new ways to capture the value of what they’re doing.  We also offer some thoughts about how law schools should grapple with the GenAI training that law students will need.