Most associates at large law firms expect that, for purposes of meeting law firm hourly billing requirements in connection with bonuses, that one hour billed to one client is as good as one hour billed to another client. And while there are certainly other metrics that go into determining an associate’s bonus other than how many hours were billed, again, as far as the hours do matter in determining a bonus, an hour is an hour is an hour.
That was not the case at one Philadelphia law firm, leading an associate who worked there for six years to sue the law firm for allegedly acting unfairly with regard to its billing and bonus practices. The associate, Ryan Leonard, and the law firm, Obermayer Rebmann Maxwell & Hippel, recently reached a settlement agreement over the dispute following a mediation, although the terms of the settlement were not released.
The Billing/Bonus Structure Under Dispute
According to the complaint filed by Leonard, the firm had a formula for calculating hourly requirements which treated hours for one client differently from hours for another client. Rather than having a single set of hourly requirements for meeting bonus thresholds, the firm would use what was called a “prorated credit” to determine an associate’s hours for bonus purposes.
This prorated credit was determined by taking the associate’s hours billed for a given client, and then multiplying that by another number reflecting the rate charged to a specific client. Thus, 100 hours billed to a client at a lower rate would count less towards a bonus than 100 hours billed to a different client at a higher rate. Leonard alleged, among other things, that partners had the ability to adjust those rates to benefit themselves and pay lower bonuses than would have otherwise been the case.
Terms of the Settlement Not Released
In its response to the associate’s allegations, the firm had argued that bonus practices were within its discretion and thus no legal obligation was violated. That said, Leonard had produced an internal 2013 memorandum from the firm’s managing committee, stating: “The management committee does not believe this is an appropriate or fair practice and that it distorts the numbers and actually reduces the profits to the partnership.”
While the terms of the settlement agreement have not been released, firms should take heed of the potential risks that come with setting billing and bonus policies.
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