Artificial Intelligence and the Future of Legal Billing

Hinshaw Law in Chicago, Illinois recently held their annual Legal Malpractice and Risk Management Conference in Chicago. One of the sessions was led by a panel of professionals who discussed the intermingling of artificial intelligence (AI) and legal fees and billing. The rapid adoption of AI within the legal profession is beginning to reshape many aspects of law firm practice, including one of the profession’s most entrenched traditions—the billable hour. As generative AI tools become more capable of performing tasks such as document review, legal research, drafting correspondence, and preparing initial pleadings in a fraction of the time previously required, law firms are increasingly reexamining how legal services are priced and billed. At the same time, clients are demanding greater pricing transparency and more predictable legal costs. Together, these forces are pushing firms to rethink traditional billing models while remaining compliant with applicable ethical rules.

Recent industry surveys highlight the growing tension between technological efficiency and traditional billing practices. A survey conducted by the legal technology company BigHand found that roughly half of surveyed clients want greater pricing transparency from law firms, while nearly half reported increasing demand for matter budgets and alternative fee arrangements (AFAs). The survey further noted that many clients are moving more quickly than firms in embracing flexible, value-based pricing models. As AI tools make certain legal tasks significantly faster to perform, clients are increasingly questioning the relationship between the time spent and the value delivered.

For decades, the billable hour has been the primary method by which law firms measure productivity and generate revenue. The traditional “leverage” model—where a relatively small number of partners oversee large numbers of associates performing billable work—has long relied on time-intensive tasks such as document review, legal research, and basic drafting. However, generative AI tools can now perform many of these tasks in seconds or minutes rather than hours. As a result, firms face a strategic dilemma: continue billing based on time, which may decrease as technology improves efficiency, or develop alternative billing methods that better reflect the value of the work performed.

Legal commentators have suggested that AI may accelerate the profession’s long-debated shift away from the billable hour. As legal analyst Jordan Furlong has observed, when firms can no longer sell the time it takes to achieve a client’s outcome, they must instead focus on selling the outcome itself and the overall client experience. This shift has the potential to transform how legal services are priced, delivered, and evaluated.

While billing models may evolve, lawyers must remain mindful of their ethical obligations. In Kentucky, attorney fees are governed by Kentucky Rules of Professional Conduct Rule 1.5. SCR 3.130 (1.5). The Rule requires that a lawyer’s fee be reasonable and identifies several factors relevant to determining reasonableness, including the time and labor required, the novelty and difficulty of the issues involved, the skill required to perform the legal service properly, customary fees for similar services, and the results obtained.

When AI is used in the delivery of legal services, these ethical considerations become particularly important. If a task that historically required several hours can now be completed in minutes using AI, lawyers must carefully consider whether billing the same number of hours would be reasonable under Rule 1.5. The answer is an emphatic no. The key ethical principle is that lawyers may bill for the time actually spent performing legal work—including reviewing, editing, and verifying AI-generated content—but they should not bill for time that was never actually incurred. Transparency with clients regarding the use of AI tools may also become increasingly important as the technology becomes more widely integrated into legal workflows.

At the same time, AI may create opportunities for law firms to explore alternative fee structures that better align with client expectations. Flat fees, subscription-based services, success fees, and hybrid billing models may become more common as firms attempt to balance efficiency gains with sustainable revenue models. Predictive analytics and AI-driven billing tools may also help firms estimate the cost of legal matters more accurately, allowing them to offer more precise budgets and pricing structures.

Ultimately, AI does not eliminate a lawyer’s professional responsibilities; rather, it requires lawyers to apply traditional ethical principles to new technological tools. The following checklist provides practical guidance for lawyers who are integrating AI into their practice while ensuring that billing practices remain ethical and compliant with Rule 1.5.

AI Billing and Ethics Checklist for Lawyers

1. Disclose the Basis of Fees Early

Clearly communicate billing arrangements to the client at the outset of representation.
Consider explaining whether AI tools may be used in performing certain legal tasks.

2. Bill Only for Time Actually Spent

If billing hourly, charge only for the lawyer’s actual time spent reviewing, editing, verifying, or refining AI-generated work product.
Do not bill for time that would have been spent absent the use of AI.

3. Ensure Fees Are Reasonable

Evaluate whether the fee charged remains reasonable under Kentucky Rule 1.5, particularly if AI significantly reduces the time required to complete a task.

4. Maintain Competent Review

Carefully review and verify all AI-generated content before using it in legal work product.
Remember that the lawyer—not the technology—remains responsible for the accuracy of the work.

5. Consider Alternative Fee Arrangements

Evaluate whether flat fees, phased billing, or other alternative arrangements may better reflect the value of the legal services provided.
Consider alternative billing methods that account for tasks done, rather than the time that it takes to do them.

6. Protect Confidentiality

Ensure that any AI tools used comply with confidentiality obligations and do not improperly disclose client information.

7. Document Work Performed

Maintain accurate records of the work actually performed by the lawyer when AI tools are used.

8. Supervise the Use of AI

If staff or junior attorneys use AI tools, ensure proper supervision and review consistent with professional responsibility obligations. (SCR 3.130 (5.1) and (5.3)).

Artificial intelligence is unlikely to eliminate the billable hour overnight, but it is already prompting law firms to reconsider how legal services are valued and delivered. As AI tools continue to improve efficiency, lawyers will need to balance innovation with ethical obligations and client expectations. Firms that proactively address these issues—through transparent billing practices, thoughtful use of technology, and creative pricing models—will be better positioned to adapt to the evolving economics of modern legal practice.

Questions? Contact Jared Burke for more information.