To think that lawyers should not charge by the hour?

[DMAGA]

I have recently been represented in an unfair dismissal case by a firm of lawyers who told me that they could help me and then did f* all. The partner charged £400 per hour, his assistant £250 per hour, the consultant £350 per hour and then I was charged for all of them having 'discussions' about my case. They ran up a bill of £200k without achieving anything and, because my case was in the Employment Tribunal, the Tribunal would not have awarded me my costs even if the matter had gone ahead to trial and i had won (which would have cost me another £300k). In the end, I sacked them and reached a satisfactory agreement with my employer on my own, but all of my settlement monies have been spent on paying my lawyers. What other jobs are remunerated by the hour which means, in effect, the more inefficient you are and the longer you take to do the job, the more you will get paid. It's bonkers, isn't it? Does anyone actually like lawyers? Don't they just thrive on other people's misfortunes?

Alternative Business Structures - aka 'Tesco Law'.

I would be surprised if anyone with a charge-out rate of £300 an hour was only earning £40k - £300 an hour is a partner rate. A 'normal' charge-out rate outside London would be somewhere between £90 and £180 for a non-partner solicitor IME.

The old rule of thumb used to be one third salary, one third overheads, one third profit for the firm (i.e. the partners). Now overheads are probably closer to half, salary a quarter and the other quarter profit - so I hear. I am not a partner (and don't ever wish to be) so I wouldn't know.

Barristers' costs are lower I believe, hence babybarrister being able to carve out 1/3 whilst solicitors have to pay more in overheads. I presume this is becuase they are client-facing and therefore need more office space for meetings, more secretarial support, receptionists etc but I am guessing really.

On tesco law and Alternative business structures, I would reiterate that it won't necessarily mean that services get cheaper, some will, some won't. Does anyone not remember the banks in the 80s. I don't see the bankers I asct or and against earning less, just (in some cases) taking more from the state by way of bail outs, charging more for their services, and in the case of those partnes who were in the ship at the time taking a lot of profit out when they converted away from partnership. I know a lot of equity partners in many firms who are looking forward to the same (i.e taking the cash out of the profession) as they will be in the ship when the firms float etc. Is that really in the clients intrerests?

There are a lot of things wrong with law, the inequality in how different lawyers are paid is but one aspect of it. ABS will make that worse not better. Access is becoming more limited, and some people are making ever increasing amounts of money.

Sadly I think that is a reflection of society as a whole, and the clients who can afford £400 per hour, or chose to because they want the name of the firm representating them, and believe big firms make it more likely they will win, or get a better settlement may also have to realise the world doesn't work that way and just because you can afford thse fees, doesn't always mean you should afford those fees.

Barristers costs are also lower because they do not handle client money so their insurance premiums are considerably lower, in addition to what you say about secretarial costs (most barristers do not use secretaries as it is the solicitor who will usually have to make copies of the files and serve them, etc), meeting space (most barristers chambers would not be large enough to hold a closing meeting on a corporate deal with multiple parties) and so on.

I've been at the Bar and am now in a firm so have seen both sides of it.

Going back to the original question, the most hated part of the job for most lawyers seems to be time recording. If we could ditch that and just charge a fixed fee for everything we would probably be much happier! The difficulty with fixed fee stuff (particularly in litigation) is the unpredictability, not least of the client! They can change strategy, etc in a way that costs a lot and if you are on a fixed fee you are stuffed unless it is a very well-defined fixed fee (difficult with the unpredictability of litigation).

On a related note to what hildathebuilder says, the big high street banks offer estate administration services and without exception charge a huge amount more than solicitors. But for some reason people have a perception that lawyer = expensive and non-lawyer = cheaper. Tis not universally true by any means.

I haven't read page 5 and 6, but just wanted t point out to those particularly realhousewife, that honestly the fees per hour DO NOT reflect pay...

My DH is 15m qualified sol. for a big practice in the city (but not magic circle), working in property. To get there he did 3 years at Uni, 1 year conversion course, one year post grad law course, then a two year traineeship.

His hourly charge, as set by the firm is £280 per hour. We worked out his net take home once ..... a whopping £14per hour..... A lot of 16 hour days, working at weekends, student loans to be repaid and higher rate tax....

Emsyj and hilda and babybarrister, all of this is utterly fascinating!

A friend and I are toying with going into private practice in a year or two, and we have been running various numbers for how to minimise overheads, but yes, infrastructure and professional organisations and billing software and LexisNexis/other research software memberships means that even if it's just the two of us, sharing one secretary and renting an office somewhere relatively inexpensive, means that we're looking at 1/3 take home, 2/3rds overheads and written off work, for what we'll be able to charge as modest suburban lawyers.

It's been really interesting to read the breakdowns here and see that it's the same for the BigLaw city firms, actually.

As salaried lawyers, the norm that we work to when negotiating salary increases used to be one third of billings, and over the last 5 years or so has definitely moved to one quarter of billings, so it's interesting to read that that's reflected in the cost of overheads and isn't just equity partner greed!

(Incidentally, as a junior, I would have to be working 10-12 hours a day to meet billing targets. It's not an easy life.)

Hmmm well when I last worked at a magic circle firm (left in 2009) my charge out rate was £360 an hour and I worked about 1800 hours a year. I got £86k basic plus bonus, taking me to £101k.

The overheads of a magic must be phenomenal though - when clients expect you to be available 24/7 the infrastructure needed is costly and significant. Blackberries, IT systems accessible from anywhere in the world but still secure, cabs home if you're in the office late, food if you're in the office late etc etc. OK, a top of lockstep magic circle partner at the firm I was at is supposedly earning £2m a year - but having seen what they have to do to get it, there is no way on this earth I would be willing to do it. If you work at that sort of firm, it is your whole life and you have to really love it and want to do it, otherwise it destroys your soul.

My first firm was the biggest and most prestigious in my city (I'm not in England) and the overheads were in-fucking-sane. All the things you mentioned, including the free food and things, but also lavish corporate events, we employed in-house catering staff and round-the-clock security for those people working overnight, there was on-going in-house training so that was paid for, various retreats and feel-good events, discounts with personal trainers (for that all-important "work-life balance" illusion), etc.

Does anyone actually like lawyers? Don't they just thrive on other people's misfortunes?

You sound like a nightmare client. My client's don't pay me a penny as I'm a legal aid lawyer.

We can't cahrge any other way than by the hour as it is impossible to predict how long or how complicated a matter will be.

Fixed fees exist but only in things like coneyancing or wills.

By all means represent yourself in future.

I didn't say you had baby, sorry if I wasn't clear.

Emsy, £360 x 1800 = around £700,000 per year. I think that should handsomely cover the costs of phones, taxis, expenses, a PA, plus insurance. And your salary was 3 or 4 times the average (I'm not resenting this, it must be extremely demanding work).

I still don't understand where the rest of this cash goes? Around £600,000 per solicitor - even if expenses come to £100,000 that still leaves half a million?

My PA earned about £40/45k a year.

The profit goes to the partners. The firm I was at had a profit share pension scheme for retired partners, so the profit was spread not only amongst current partners but numerous long-retired folk too.

That said, magic circle partners earn a huge amount of money. To me, the lifestyle is too high a price to pay for that sort of income, but there you go.

Meant to say, expenses would be well in excess of £100k - way way way more. Central London offices, 2 reception desks for visitors arriving, another reception desk outside the meeting rooms on 2 floors, 2 floors of meeting rooms, huge and very well-stocked research library, library staff, paralegals, billing staff, training (of which I had lots every single week to keep me up to date with the law), external training (v. expensive) etc etc.

btw I have been involved in this as a member of a group action against big business which lost funding. All we saw was the state struggling to fight rising costs and big business knowing full well that they could draw the case out until the legal aid system could no longer justify funding. (Everyone said we should have won this).

In the end, our solicitor, after 6 years of fighting, had to throw his hands up and say - big business gets away with these things because they CAN. I suspect BIG solicitors firms do the same thing - however the fallout in the end is Justice for the general public, as the legal aid system can't match the fees big business can afford.

I agree that legal aid is a different issue, just stating my background while others on here are is being open. But I do suspect the greedy law firms (not blaming individual solicitors) have got where they have because the legal aid system/CPS has been ready to defend cases with an endlessly deep pocket. The american system of insurance would cover this far better IMO.

This Tesco law is surely part of the coalition's fantasy notion that opening up markets even more will offer better competition and therefore lower fees to the public (in their dreams). Similarly to their misguided plans to farm out the NHS services, it's bound to end in disaster!

emsy it's the costs directly related to you as an individual solicitor that we need to look at - or perhaps we need to divide it by the charge out rate for all the others in the firm and include the income made from admin fees in addition to the charge out rate.

Surely there must be figures somewhere? I suppose if expenses include deliberately unclear pension costs there would be no simple way to account for these fees. Accountability is what this thread is about IMO.

OP - I think you're getting a pasting because instead of posting that you have been treated badly and overcharged by one firm of solicitors, you have extrapolated from your experience that all lawyers are money-grabbing ingrates and should adopt a new charging system.

Realhousewife

where does the rest go (assuming anyone actually does bill £700,000 - which in the main they don't even in the magic circle. realistically you can expect that a fee earner will bill £400,000 - £500,000 in those firms when at those rates - less at other firms (eg my own where in the city we expect people to bill about £300,000 in a good year)

But I will take your figures by way of example.

Time recorded £360 X1800.

Time written off at the point of billing (on average 10-20% say 15%) 1530 hours left.

Time Billed at discounted rates about 30% of what's left. So and on average again I would discount 10-20% say 15% so hourly rate of £306 for 459 hours 140,454 billed at a discount, 385,560.00 billed at cost. Total billed £526,014

Amount recovered in most law firms is about 85-90% rest goes to bad debts, as I say people don't tend to pay on time, or at all so again being generous £473,412.60 (90% of 526,014).

Then you look at the costs. The costs I gave were for outside London, and I can easily double them for inside London, but I will assume that the firm in question does not pay through the nose for property and insurance and knock off say £225,000 for costs including secretarial costs (again assume a good pa in London earns £35-40k and believe me they have to be good to do those jobs). So by this point we are on slightly less than £250k

The solicitor would typically be earning in the region of £100k from that, the balance goes into the equity partners hands as profit.

So in theory the equity partner eanrs £150k from that solicitor. However again they have to fund the business from that, and in many cases own at least £250,000 (or more) of the business, and so they will want interest on their capital (or more likely pay interest on their capital. The rates at the moment are about 4% if you are very lucky so assuming £250k inversted £10k of that profit goes straight to the bank)

So then they are back to 140k profit. Now mostly it takes 3- 6 months to get the profit out and therefore they are funding everything which again has a cost, so after all of that, they may get £100k profit from the solicitor. In some firms that is realistic. There are a very small number of firms where the partners take out £1m in profit, and those will be the firms who have got the gearing etc as good as this example suggests it can be. The solicitors working and billing 1800 hours (and doing all the bsuiness development, marketing, training, admin, credit control,billing atc on top of those hours). If all firms were doing that I would be a lot richer than I am now!

In reality at all stages in this example I have been assuming good performance (from hours worked, to hours discounted, to recovery after billing, to office property costs, and cash lock up), and mostly therefore the partners in top 50 firms make between £100k - £700k (from the lawyer magazines latest figures). And the solictors even in London comemrcial firms earn £50k - £100k, which is a lot, but not necessarily ridiculous given the hours they work, the training they do, and most particularly the commercial world we live in.

The costs directly related to me as an individual solicitor would have to include a share of the overall costs of the firm, otherwise the figures would be misleading surely? If I am earning £700k a year for the firm then it is a nonsense to say that the costs directly related to me are £100k if the costs of the firm as a whole when apportioned amongst the fee earners according to their revenue is a totally different figure IMO.

What's the income from admin fees?

Who do you think the big City law firms should be accountable to? Genuinely curious, not being snippy - I would think if the clients are happy to pay then why does it matter to anyone else? Of course, if the client is a government body spending taxpayers' money then that is different and the government (not the firm) should be able to justify their legal spend.

This is all very interesting. So why would Tesco etc even want to buy up or invest in any law firms if they are not very profitable i.e. only a few partners make a lot of money. How are they going to pay their shareholders big returns if the partners stay in the business? And if the partners leave the business then presumably their fee earning and expertise is lost, so the business loses value.

Having read some of these posts I don't think I would want to buy shares in a law firm, given some of the comments here about the cost of overheads, the extent of regulation etc. An investment in a few spray tanning salons certainly sounds like a better alternative! I suppose the work will need to be 'de-skilled' and this leads to more negligence claims and higher insurance etc. Barristers would appear to be in a better position as at least they have more control over their destiny and lower overheads. However, if you factor in the lack of paid holidays, maternity pay etc, I can see the difficulties.

I suppose the relatively unimpressive financial returns would be outweighed by a love of the job, but it sounds as though many are worn down by the bureaucracy, time recording, regulation etc, not to mention the clients.

I am not sure that I would advise my DDs to become lawyers.