It is that season again, just as it is every year. Everywhere around us, miracles will be occurring. All we have to do is open our eyes to see.
You probably think this has something to do with Christmas. Nope. I’m talking about the season where law firms raise their rates, and, with their associates, raise them twice. Everyone knows that in December, law firms send a letter to their clients announcing higher rates for the new year. But it’s not just the annual 5% hike (or whatever percentage is applied this year), it is the unspoken “advancement” hike that kills clients.
What’s the advancement hike? It occurs when a first year associate becomes a second year associate, second becomes third and so forth. So firms raise the rate for each class and advance people a class. So if a first year lawyer is billing $250 per hour, a second year lawyer is billing $275 and a third year lawyer $300, the class rates may be increased by roughly 4% to $260, $285 and $310. But the first year billing $250 is now billed at the higher second year rate of $285, which for that lawyer is a 14% hike. For the second year lawyer who moves from $275 to $310, the hike is 13%. The lawyers are not providing any greater value the day after the price increase than they were before. The “class creep” hike somehow justifies these staggering percentage increases. It’s a miracle. No other explanation works.
Clients used to grumble about this, but then they paid. These days, some clients are actually rejecting higher rates. Imagine that. If I were a client and somehow got roped into paying by the hour, I would insist that rates on a case not move during the duration of the case. Otherwise, the overall effective rate increase is far higher than the small, single-digit number the law firms mention in their annual “happy holidays” price hike letter.