In brief
- Virginia State Bar approves LEO 1901 supporting AI use in billing
- Legal fees can reflect value, not just time, under Rule 1.5
- Generative AI seen as requiring specialized legal skill
- VSB opinion diverges from ABA and North Carolina guidance
As the use of artificial intelligence continues to grow across professional industries, lawyers and members of the legal profession have had to adapt to the changing technologies.
As the use of AI, namely generative AI, continues to spread, concerns have been raised about how lawyers can properly bill for their services despite saving time by using generative AI for some tasks.
A legal ethics opinion recently approved by the Virginia State Bar Council aims to provide guidance on how attorneys can properly charge for use of tools that increase productivity, like generative AI, while ensuring the fees charged are still reasonable.
The opinion, LEO 1901, was approved by VSB Council by a 61-1 vote at the VSB Annual Meeting last month and is pending before the Supreme Court of Virginia for approval.
“While it is clear that time-based billing, such as hourly fees, can only be based on the actual time spent on a task, lawyers increasingly seek guidance on the ethical parameters for non-hourly fee structures and how to assess reasonableness when using time-saving tools that rely on generative AI,” LEO 1901 states.
In sum, LEO 1901 states that Rule 1.5 of the Rules of Professional Conduct, which discusses reasonableness of legal fees, does not “equate reduced time with proportionally reduced fees,” while reiterating that the rule supports value-based billing on a non-hourly basis for work done with the assistance of generative AI.
The opinion also states that attorneys should be able to adequately explain the fee charged even when the time spent is reduced via use of generative AI.
VSB Ethics Counsel Emily Hedrick told Virginia Lawyers Weekly that the VSB Ethics Committee “was concerned that the approach taken by [American Bar Association Formal Opinion 512] and opinions from certain other jurisdictions implied that time spent on a task is the only or primary valid measurement for the reasonableness of legal fees, when in fact there are several other factors in Rule 1.5(a) that should be considered in the analysis.”
For too long, our profession has suffered under the tyranny of the billable hour.
— Tricia Dunlap, Richmond
Richmond attorney Tricia Dunlap, who is a frequent speaker on AI and legal ethics, said the legal ethics opinion presents a welcome change from billing for time.
“For too long, our profession has suffered under the tyranny of the billable hour,” Dunlap said. “We’ve confused time with value, forgetting that we are not selling hours — we are selling help. The Virginia State Bar’s conclusion that ‘the time spent on a task… should not be the determinative factor’ in assessing a fee’s reasonableness is a bold and overdue recognition of this truth.”
Time vs. labor
LEO 1901 begins by painting the addressed issue not as one solely applicable to generative AI, but for any tool that may result in increased efficiency in legal work. The opinion adds that “tension lies between ‘the time and labor required’ and ‘the skill requisite to perform the legal service properly.’”
“While generative AI can dramatically reduce the ‘time and labor required’ for certain tasks, such as drafting routine documents, conducting preliminary research, or analyzing large volumes of data, it would not be reasonable to conclude that a lawyer is ethically required to reduce or limit the fee based solely on that factor.”
Instead, the opinion states, the skill required to properly perform the service may actually increase in order to use AI properly, noting the “specialized knowledge” needed to effectively prompt AI and in using judgment to know how to deploy the AI tools.
Roanoke attorney Beth Burgin Waller moderated a CLE seminar on AI at the VSB Annual Meeting last month.
“GenAI can substantially reduce the amount of time a legal task may take,” Waller said. “However, to be able to properly ‘prompt’ GenAI to return valuable results takes a certain level of technical skill and knowhow.” Waller also noted that lawyers need to use their legal expertise in analyzing the outputs created by generative AI.
“GenAI, because it has been trained to get to any answer — even if it is not the correct answer — will hallucinate and must be carefully checked for errors by a trained lawyer before being utilized in, for example, any legal brief,” Waller said.
There are many billing options other than hourly fees, and the committee believes it is important to allow lawyers to explore those options.
— Emily Hedrick, Virginia State Bar
In fact, LEO 1901 states that a lawyer’s value proposition could include the ability to “frame legal problems in ways technology can address while knowing when human judgment must predominate, which provides a sound basis for maintaining value-based fees even as raw production time decreases.”
Addressing Rule 1.5(b), LEO 1901 emphasizes that a lawyer must adequately explain the basis of a fee to the client, specifically in justifying the use of experience, technical skills, or related value propositions that support the value-based fee.
“A proper analysis should recognize that reasonable non-hourly fees can reflect efficiency gains, the specialized skill of effectively incorporating technology and the value of the relevant services and output,” LEO 1901 concludes.
Hedrick said this opinion will give attorneys options in deciding how to bill for their services.
“There are many billing options other than hourly fees, and the committee believes it is important to allow lawyers to explore those options in compliance with Rule 1.5 without tethering them to a time-based comparison,” Hedrick said.
Dueling opinions
LEO 1901 also addresses head-on differences between what Virginia decided and ABA Formal Opinion 512, which states that “it may be unreasonable under Rule 1.5 for the lawyer to charge the same flat fee when using the GAI tool as when not using it.”
“I would argue that the Virginia State Bar’s guidance is much more in-depth and takes into consideration the nuances of GenAI in a way that the fees section of ABA Formal Opinion 512 did not,” Waller said.
The opinion also addressed an ethics opinion from the North Carolina Bar, which stated in part that flat fees may be appropriate in cases where AI has shortened the time spent on a task, but left unanswered to what extent the flat fee can be adjusted.
“The committee disagrees with the conclusions stated or implied by those opinions, concluding that it is not per se unreasonable for a lawyer to charge the same non-hourly fee for work done with the assistance of AI as work done without the use of AI,” LEO 1901 states.
What’s next?
Looking ahead, Waller said Virginia has been “a pioneer in the field of technology and technology law” and continues to do so “in its unique understanding of generative AI and its intersection with lawyer ethics.”
“The VSB has, with LEO 1901, given Virginia lawyers flexibility to innovate with GenAI and recognized the special skillset that is necessary to properly wield this new technology,” Waller said.
Dunlap said that pivoting from time-based billing to value-based billing can be a complicated undertaking, requiring a time investment in setting ethical fees.
“Setting flat fees requires us to think deeply about the value we deliver to clients — not just the work we perform,” Dunlap said. “That process demands both data and discernment, and it challenges lawyers to step into a more entrepreneurial mindset.”
Dunlap added that a change to value-based billing “is not a shortcut; it is a shift.”
“It demands capital investments, ongoing training, and a reimagining of how we deliver excellence,” Dunlap said. “But law firms that fail to meet this challenge will fall behind. The technology is advancing whether we’re ready or not — the question is whether we’re willing to do the work to keep up.”
