The Billable Hour: A History Every Lawyer Should Understand Before AI Rewrites It

For much of modern history, lawyers did not bill by the hour. In the early 20th century, most lawyers charged flat fees for common services or simply submitted a bill for “services rendered” at the end of a matter . It wasn’t until the 1960s and 1970s that the billable hour became dominant, driven by a combination of forces: corporate clients demanding more transparency, the growth of in-house legal departments, and a Supreme Court decision in 1975 that struck down mandatory bar fee schedules . By the 1980s, six-minute increments, time sheets, and annual billing quotas were entrenched as the default operating system of law firm management.

The model proved sticky because it aligned well with the economic incentives of law firms. Hours multiplied by rates produced a simple revenue formula, and annual rate increases boosted profits year after year. Partners prospered, associates were measured by their hours, and law firm culture was built around time as the unit of value. Entire career paths and compensation systems were organized around one question: how many hours can you bill?

But the billable hour has never been free from criticism. Clients have long worried that hourly billing rewards inefficiency, while lawyers have struggled with the relentless pressure to hit targets. An American Bar Association report once warned that the model effectively punishes efficiency: the faster and sharper the lawyer, the lower the fee . Despite these tensions, the system endured because it was predictable for firms, lucrative for partners, and difficult to dislodge. Even today, despite decades of discussion around alternative fee arrangements, the billable hour remains the backbone of law firm economics .

Understanding this history matters because the billable hour’s durability is about to be tested in a way it never has before. Artificial intelligence in law practice is changing the economics of legal work. When drafting, research, and review shift from hours to minutes, pricing by the minute no longer makes sense. What happens to a model that equates time with value when technology collapses the time required?

Consider a simple example. A due diligence review that once occupied ten associates for two weeks might now be performed by AI in a single afternoon. Under the billable hour, that means less revenue, not more, even though the client receives the same or better outcome. The very efficiency clients have always demanded now undermines the firm’s business model.

That tension is why lawyers must learn about the billable hour’s past to understand its future. The history shows how a set of economic incentives hardened into culture, and why firms have been reluctant to abandon it. But AI introduces a force that is different from past pressures. Clients will not pay for ten hours if they know the work took ten minutes. Nor will firms be able to hide inefficiency when machines expose just how quickly certain tasks can be done.

The likely result is that firms will be pushed toward alternative models, like flat fees, subscriptions, or value-based pricing, that reward outcomes rather than time . For some, this will be painful, as it requires undoing decades of habit. For others, it will be liberating, allowing them to convert efficiency into margins and offer clients predictability. Either way, the billable hour will not emerge unchanged.

Lawyers who understand the billable hour’s origins, its economic logic, and its cultural impact will be best positioned to navigate this shift. Those who cling to hours as the measure of value may find themselves outpaced by competitors who align their pricing with the new realities of AI-driven practice.

The billable hour shaped law firm management for half a century. The question now is whether it can survive the next decade.

If you want to dive deeper into how legal AI is transforming law firm economics, including the billable hour, sign up to be notified when Infinite Counsel: A Lawyer’s Guide to Mastering Artificial Intelligence and the New Economics of Practice is released.