Redefining "Reasonable" Legal Fees in the AI Era

The increasing use of generative AI in legal practice leads to questions about the interplay between efficiency gains and legal fees. Lawyers have an ethical obligation to ensure that their billing is "reasonable." 

As the "billable hour" remains at the heart of the business model for most lawyers, the time it takes to accomplish a legal task is often simplistically assumed to represent the value of the legal service. What does that mean, however, when AI fundamentally changes the time required to deliver the legal service. Must a lawyer slash the cost of their legal service to comply with the ethical obligation to charge a "reasonable" fee?

Virginia's recently proposed Legal Ethics Opinion 1901 (LEO 1901) looks closely at this issue, and provides some well-informed, forward thinking guidance. The ethics opinion suggests that the value of the legal service includes the lawyer's skill to use AI effectively, and the fact that the ultimate responsibility for the work product rests with the lawyer. The value of the legal services  should not just be about hours spent. 

The "Reasonableness" Standard for Legal Fees

Before getting into AI, let's look at the basic ethics rule governing the reasonableness of legal fees. Rule 1.5(a) simply states, "A lawyer's fee shall be reasonable." To help figure out what's reasonable, the rule lists several factors including the time and effort needed, the complexity or novelty of the legal questions, and the level of skill required to deliver the legal service. Other points considered are preclusion from taking other matters, the usual fee in the area for similar work, any tight deadlines, the lawyer's history with the client, the lawyer's experience and reputation, and whether the fee is fixed or depends on the outcome of the matter.

Obviously, the number of hours invested does not define the reasonableness of the fee.

Addressing the AI Efficiency Question Head-On

So, the big question Virginia's proposed LEO 1901 tackles is: If AI lets a lawyer finish work much faster, does a flat fee have to be lowered because the lawyer used AI? Virginia's proposed answer is: "not necessarily." The draft opinion makes a good case that looking only at the time invested is too narrow a view of the reasonableness standard. Just because AI reduces the hours doesn't automatically make a fair flat fee unfair. This approach moves beyond simply tying hours worked to value, acknowledging that modern legal work involves more than just putting in time.

The Real Value is Lawyer Skill Guiding AI Tools and Validating Its Output

It might seem logical that less time should equal a lower fee. But LEO 1901 looks closer, pointing out that using AI well takes real lawyer skill. It's not about letting the software run wild; it’s about the lawyer carefully directing, checking, and using the tool. The lawyer retains the ultimate responsibility for the delivery of the legal service.

Think about the steps a lawyer takes when using AI responsibly. They need skill to ask the AI the right questions to get useful answers (prompting). They have to carefully check what the AI suggests for accuracy, completeness, and relevance, watching out for mistakes – because the lawyer is ultimately responsible for the work product (verification). Putting the AI's help smoothly into the final document or advice takes know-how. Maybe most importantly, lawyers use their legal knowledge and judgment to assess the AI's output, decide what to use, and know when their own insight is more important than the machine's suggestion. 

This combination—the lawyer's judgment and experience plus their ability to effectively use AI—creates value for the client. LEO 1901 suggests the fee reflects this overall capability and the value provided, not just the hours clocked. Reducing fees just because time was saved ignores the effort lawyers put into learning these tools, their skill in using AI effectively, the legal experience and insight needed to provide critical oversight, and their ultimate responsibility for the accuracy and quality of the legal work.

Virginia's Approach in Comparison

It's useful to see how Virginia's practical view lines up with other recent guidance. For example:

• ABA Formal Opinion 512 (2024) hinted that major time savings from AI might make a previously fair flat fee unreasonable, suggesting fees might need adjusting based on time saved.
• North Carolina's 2024 Formal Ethics Opinion 1 advised against billing for the "estimated time" work would have taken without AI and suggested flat fees might need to come down due to AI efficiency, though it wasn't precise on how much.

Virginia's draft opinion pushes back a bit on what these other opinions might mean. LEO 1901 argues they might focus too much on the "time and labor" factor, instead of weighing all the factors in Rule 1.5(a) together. Virginia's proposal suggests the other views don't fully account for the skill needed to use advanced technology well. It reinforces that you have to look at everything – skill, complexity, results, experience – when deciding if a fee is reasonable.

AI is not purely an autonomous automation of legal work. 

Moving Past Just Counting Hours

For a long time, the billable hour has made many lawyers and clients think time equals value. While tracking time is needed for hourly billing (and LEO 1901 agrees billed hours must be accurate), it’s often not the best measure of a lawyer's true contribution, especially with flat fees or other value-based models that clients often like for budget certainty.

LEO 1901 wisely avoids making "time and labor" the main factor for judging if a non-hourly fee is reasonable. It backs the idea that if a lawyer uses their experience, smarts, and tools like AI to get a great result efficiently, the value delivered is still high. The client gets quality work faster, benefiting from the lawyer's improved efficiency. New technologies offer lawyers the opportunity to provide services more effectively, and this shouldn't automatically lower the value of the service from an ethical standpoint, as the draft opinion suggests.

Market Rates vs. Ethics Rules

The Virginia opinion also makes a helpful distinction between ethics rules and how the market works. Over time, as AI becomes common, competition might affect pricing for some legal tasks. But LEO 1901 correctly argues that ethics rules shouldn't force a lawyer to cut their fee just because they adopted technology that makes them more effective.

Under this view, it shouldn't be an ethics problem for a lawyer to charge an agreed-upon flat fee that's reasonable based on all of the Rule 1.5(a) factors even if AI helped them do the work faster. The market, with clients looking for effective and efficient lawyers, will play its part in setting prices based on this overall value.

Good Communication is Key - Rule 1.5(b)

Of course, talking clearly with clients is always important. Rule 1.5(b) requires that fees be "adequately explained." LEO 1901 notes this is especially true when using non-hourly fees that account for skill and value, potentially increased by AI use. If technology significantly speeds things up, lawyers should explain how the fee reflects their expertise, the value delivered, the results achieved, and the effective use of technology. Being upfront builds trust and helps clients understand they're paying for the skilled application of all available resources to meet their goals.

A Sensible Path in an Efficient World

Virginia's proposed LEO 1901 offers a practical and current view on AI and legal fees. By stating that less time doesn't automatically mean a lower fee, it recognizes the skill, judgment, and effort needed to use AI well. It confirms that a lawyer's value is more than just hours worked.

While this opinion is specific to Virginia for now, its reasoning provides helpful ethical grounding for lawyers everywhere adapting to AI. It supports efficiency by focusing on the total value delivered – skill, judgment, results, and the smart use of tools. This approach allows the legal field to adapt to new technology while keeping the ethical focus on reasonable fees and clear client communication. It's a constructive step in an important ongoing discussion for the legal profession.