Why Hourly Billing IS Unethical--A Theory

A lot has been written on whether or not hourly billing is unethical. My colleague and friend, Ric Payne, recently weighed in with his thoughts, mostly in response to something Rob Nixon out of Australia wrote in his newsletter. Obviously, Ric thinks hourly billing can be ethical.Our friend and colleague Mark Bailey also weighed in on his Blog, arguing that hourly billing is unethical. (This post also prompted Mark to apologize to Ric, but I'm going to avoid that debate).But I think all the posts missed the main reason why hourly billing is not ethical. To explain, we have to discuss what, exactly, is ethics, as well as a bit of philosophy.Ethics—originating from the Greek word ethos, meaning habit—is the study of morality. Morality is concerned with social practices defining right and wrong. It exists prior to the acceptance by any one individual. In other words, morality is not a personal choice but a social construct. I'm sure Hitler thought he was ethical. So what?Ethical theory is a reflection on right actions. Aristotle wrote that ethics was a branch of politics, and since morality and politics are inseparable the political question is, "How ought we to order our life together?" After all, you would not need to study morality or ethics if you were stranded on an island, since there would be no one to be "just" or "unjust" to.The Josephson Institute of Ethics, one of our favorite resources for ethics education, defines ethics this way:

Ethics is about how we meet the challenge of doing the right thing when that will cost more than we want to pay. There are two aspects to ethics: The first involves the ability to discern right from wrong, good from evil, and propriety from impropriety. The second involves the commitment to do what is right, good and proper. Ethics entails action; it is not just a topic to mull or debate.

Rather than merely analyzing the consequences of actions, there exists a philosophical theory that holds that one should do what is right. This is known as deontology, a Greek term meaning duty.Deontologists believe in universal principles (thou shall not steal, murder, etc.) and that consequences should not be the only criteria used to judge moral behavior. The leading deontologist is the German Philosopher Immanuel Kant (1724-1804). Kant proposed two questions, "What may we hope for?" and "What ought we to do?"Kant's theory places motives for actions as higher importance than the consequences of those actions. In other words, one should do what is right, for the right reasons. If one is honest only because they believe honesty pays, it's not as moral as those who are honest because it is the right thing to do, according to Kant.Kant proposed broad principles in order to provide a framework for making moral decisions, described as categorical imperatives:

1. Act only on that maxim by which you can at the same time will that it should become a universal law (e.g., no stealing).
2. Act so that you treat humanity whether, in your own person or in that of another, always as an end and never as a means only (people are to be respected because they have dignity. Moral agency is what gives humans dignity).
3. Kingdom of Ends formulation: You should act as if you were a member of an ideal kingdom of ends in which you were both subject and sovereign at the same time.

If you apply this test to hourly billing, you find it fails miserably on all the questions, especially the first and third.Would you want hourly billing to become universal? Would you want all businesses to utilize it?If the Golden Rule is true—treat others as you yourself would want to be treated—how can one defend the morality of hourly billing?Now Ric countered that he believes it's ethical as long as the customer knows in advance what the price is, and agrees to it. That's true.But the reality is, most firms that bill by the hour do not quote fixed prices up-front, they quote hourly rates, or at best, a range of prices. Again, would you accept that from a hotel, an airline, a grocery store?My earthquake insurance companies quotes me a fixed premium, even though it really doesn't know the costs of a future earthquake. It's called taking a risk, the source of all profits.Hourly billing also misaligns the incentives between professionals and customers, and there exists much empirical evidence for this. Just look at any ABA survey, or advertising survey. For a detailed explanation of the ethics of hourly billing, the best book is The Honest Hour, by William G. Ross. This book documents all of the ethical challenges caused by the billable hour in the legal industry.Ross actually concludes, like Ric, it can be ethical policy; again missing the point completely.As Aristotle wrote, "It's not easy to be a good citizen in a bad society."Hourly billing creates a bad culture, focused almost exclusively on the convenience of the seller, not the customer.It's not how you purchase anything else in your life. You wouldn't tolerate it for one minute if any other business tried to price this way.Hence, it's unethical.I think Kant would agree.