The end of the billable hour? How law firms are adapting to AI
Law firms must adapt as AI reshapes the legal profession, pricing models and education while clients demand increased efficiency and transparency
The legal profession stands at a crossroads. For decades, law firms operated on a predictable model: hire cohorts of graduates, train them through routine tasks, and gradually develop them into partners. This pyramid structure, built on billable hours and hierarchical progression, provided stability and profitability. But artificial intelligence has arrived to disrupt this foundation, forcing firms to confront uncomfortable questions about their future survival.
The implications extend far beyond simple efficiency gains. As AI systems become capable of handling document review, contract analysis, and research tasks that once occupied junior lawyers for months, the traditional pathway to partnership may disappear. Firms must reimagine not just how they deliver legal services, but how they structure themselves, train their people, and charge their clients.
Recent research found that 80% of legal-related professionals (such as those working in law, tax, accounting, risk, fraud and compliance) believe AI will have a significant impact on their work within the next five years, and 53% said their organisations are already seeing a return on investment (ROI) from investing in AI. Among legal professionals currently using AI tools, similar research found 77% use it for document review, 74% use it for legal research, 74% use it to summarise documents, and 59% use it to draft briefs or memos.
Learn more: How AI is changing work and boosting economic productivity
This kind of transformation affects every stakeholder in the legal ecosystem. Law schools face pressure to overhaul curricula that no longer prepare graduates for available roles. Established firms must compete with technology-enabled newcomers offering services at a fraction of traditional costs. Clients, particularly sophisticated corporations, increasingly demand that efficiency gains from AI adoption translate into reduced legal fees.
In response, leading firms have begun rolling out AI platforms across their global offices, while others experiment with subscription-based pricing models. Some predict the profession may split, with business-focused legal advisers separating from traditional independent lawyers. The speed of this transformation varies, but the direction appears irreversible.
How is AI impacting professional services firms?
The hierarchical structure of professional services firms is evolving in line with AI models becoming more sophisticated, according to Professor George Shinkle, School of Management and Governance at UNSW Business School. “We’re likely to see a structural rebalancing rather than a wholesale collapse of traditional hierarchies,” he explained.
“As AI systems take on routine analysis, drafting, and process-heavy tasks, firms will become leaner, with a greater emphasis on senior professionals who can integrate technology, exercise judgment, and manage complex client relationships. However, this transformation will not be immediate. Many clients – particularly in high-stakes or regulated domains – will continue to demand human validation or oversight. Trust in AI will build incrementally, and for now, human sign-off remains critical to perceived quality and risk assurance.”
There are historical precedents to help professional services firms understand the potential impact of AI. In legal services, for example, Prof. Shinkle said that e-discovery tools displaced much of the manual document review previously done by junior associates. This kind of automation shifted – not eliminated – demand, elevating the premium on higher-order skills. “The historical lesson is clear: technological displacement tends to hollow out the bottom and middle and elevate those who can reframe value at a strategic level,” he asserted.
This kind of fundamental shift will likely have a significant impact on the educational pipeline for lawyers and other entry-level professionals. If early-career roles diminish, Prof. Shinkle said, new approaches to capability development will be required. “The traditional ‘apprenticeship’ model, which involves ‘learning by doing’ under supervision, may no longer scale,” he said.
“I can envision a world where universities partner more closely with industry to produce work-ready graduates equipped with both domain knowledge and fluency in AI-enabled tools. Curricula will need to emphasise systems thinking, data interpretation, and client advisory capabilities. In short, professional education must shift from procedural knowledge to strategic competence much earlier in the pipeline.”
In looking to the future, Prof. Shinkle said the business models and value propositions of law firms will need to evolve in line with AI technologies. “I’d expect leading firms to move decisively toward value-based or outcome-oriented pricing models, particularly in areas where AI enables unprecedented efficiency,” he said. "Rather than billing for hours expended, firms will compete on their ability to resolve client problems, manage risk, and deliver measurable impact.
Learn more: AI won't take your job (yet): Insights from OpenAI's Chief Economist
“AI will be foundational to delivery – but the differentiator will be how firms combine technological scale with human insight. The strategic imperative is clear: those that evolve their operating models around client outcomes, rather than internal process efficiency, will outperform in an increasingly competitive landscape,” he said.
The flattening pyramid: How AI reshapes law firm hierarchies
The traditional law firm structure faces fundamental disruption as AI systems assume responsibility for work previously performed by junior lawyers and paralegals. Michael Legg, Professor in the Faculty of Law and Justice at UNSW Sydney and Director of the Centre for the Future of the Legal Profession, explained the scope of this change. “The traditional structure for large law firms is the pyramid structure, with many junior lawyers at the bottom. They skill up, and they either go up through the ranks to become partners, or they’ll go out and take on different roles,” he explained.
“However, with AI taking over a lot more routine types of work, there will be significant automation of the work that junior lawyers traditionally undertook. While it’s unlikely that work will be fully automated, the impact on large cohorts of junior lawyers and paralegals will be significant.”
The consequences extend beyond simple workforce reduction. “The number of lawyers, particularly in the traditional way that we think of law practitioners, will shrink, and so law firm structures will flatten. But I think it’s also likely that you’re going to have additional roles start to develop,” he predicted.
These emerging roles reflect the intersection of legal expertise and technological capability. Firms will require law tech solutions advisers and legal data scientists who can bridge the gap between AI-generated insights and legal judgment. “So you’ll need your law tech solutions advisor or your legal data scientist, who’s able to help lawyers by collating data, producing an analysis and generating insights for lawyers” he said.
Hilary Goodier is a Partner at top-tier law firm Ashurst and Global Head of Ashurst Advance, the NewLaw division of the firm, which delivers innovative and digitally enabled legal services. In these roles, she has observed the transformation of law firsthand. Ashurst, for example, became the first global law firm to roll out a legal-focused AI platform ("Harvey") to all staff across all global offices simultaneously. “Legal service delivery is increasingly multidisciplinary, and clients are seeing the value of digital technologists, legal project managers and technology collaborating on their matters,” Ms Goodier explained. “These specialists are valued by us and our clients and paid for in the same way as legal expertise.”
The transition requires careful management. Ms Goodier emphasised that “ensuring that our people are digitally fluent means they are comfortable not only using AI tools, but knowing where they can add value, and importantly, where they can’t. That's critical, and it’s a core focus of our AI enablement programs and responsible deployment of AI at Ashurst. We call this the ‘human in the loop’.”
Learn more: GenAI before the courts: the legal risks in using artificial intelligence
This human oversight remains essential, because Ms Goodier asserts that the use of AI tools, even at the request of clients, “doesn’t alter or reduce the responsibility and professional obligations of our lawyers or the firm for the quality, accuracy and completeness of the advice and services we provide”.
Beyond the billable hour: New business models emerge
This transformation extends beyond workforce structure to fundamental questions about how legal services are priced and delivered. Traditional billing models, built around recording lawyer time, face pressure as AI systems complete tasks in minutes rather than hours.
Prof. Legg acknowledged that while the billable hour is the traditional foundation for how law firms generate revenue, he pointed out that the profession has always employed alternative approaches. “We’ve always had flat fees for things like conveyancing, wills or consumer-level legal services. I think we will see more flat fees or subscription fees as an option,” he said.
The most interesting development involves value-based billing, though Prof. Legg was uncertain whether law firms and clients would embrace this approach. “The interesting question is whether lawyers can actually master that mindset, and then whether clients will want to pay in that way. If a lawyer comes up with tax advice that saves the client millions and millions of dollars, does the lawyer get a percentage of those savings? Or if there’s a transaction that is successfully finalised, does the lawyer get paid some sort of bonus?" he asked.
"There can be greater uncertainty for the lawyer as to when and how much they are paid. Linking remuneration to outcome can also raise ethical issues, as lawyers are required to be independent and uphold the rule of law, not just promote the client’s interests. Equally, the client has to be content to focus on the result and not have visibility as to the time and effort contributed. Is that going to be a way in which things might work in the future?”
Ms Goodier says this transformation has already begun. “I believe the business model of law will finally undergo genuine disruption due to AI advancements,” she stated. “The billable hour may have finally met its match, and this may result in increased alternative fee arrangements as law firms share the efficiency benefits with clients.”
Client expectations drive much of this change, she explained: “Clients are interested in how we are using AI and how we can leverage it to drive efficiencies and cost savings. We’re currently running lots of joint experiments with clients to really test the limits of the technology,” Ms Goodier said. “We have won a couple of very large mandates recently because of how we were able to infuse the technology with our legal expertise and demonstrate value for the client.”
Sophisticated clients, particularly those with in-house legal teams, increasingly demand transparency about AI adoption. Prof. Legg noted that such clients sometimes push for technology to be adopted, and for transparency in its use. “They’re thinking in terms of, ‘How is this going to save me money? And I need that reflected in the way that you’re going to charge me,” he said.
This pressure creates challenges for law firms. “That’s where I think a lot of pressure will come on law firms, because large corporations will have in-house legal counsel or a legal operations function that is pushing to cut the spend on legal work. So law firms then need to figure out how to make that work and still make money,” said Prof. Legg.
The implications vary significantly by firm size. Large firms with sophisticated clients may adapt successfully, but smaller practices face existential threats. “Suburban law firms, sole practitioners and regional law firms, they’re the ones where I think the technology is going to hit the hardest, because their clients are the ones that are most price sensitive, and the so-called ‘NewLaw’ firms built on technology can deliver many services, more efficiently,” he said.
Human skills in an AI world: What remains uniquely human?
Despite AI’s expanding capabilities, certain aspects of legal practice remain distinctly human. Understanding these domains becomes crucial for lawyers seeking to remain relevant in an automated environment.
Ms Goodier identified the core human advantages: “The elements of legal work that remain core to any firm’s success and are, at least for now, ‘uniquely human’, are the strength of their relationships and judgment. Relationships will perhaps become even more essential as technology permeates more and more of our personal and professional lives,” she explained.
The complexity of human behaviour also creates ongoing opportunities for legal professionals. Understanding the nuance or context in a scenario, and that people don’t always behave in the way you expect them to, requires human judgment (at least for now), according to Ms Goodier: “the technology is still some way off in mastering that skill,” she observed.
Subscribe to BusinessThink for the latest research, analysis and insights from UNSW Business School
Prof. Legg shared Ms Goodier’s perspective and emphasised that legal expertise involves more than just pattern recognition. “One of the points that is important in this debate is that the law is not necessarily just sitting there and able to just be picked up,” he said. “One of the things that we spend a lot of time developing with students, which carries through into practice, is first defining the problem and then identifying and analysing relevant law.”
This analytical process requires sophisticated judgment, he explained: “For example, I might be advising a client or arguing in court or structuring a transaction, and I need to determine if that case decides the outcome, or is there a way for it to be distinguished? And that’s the sort of legal knowledge, the ‘writ large’, that is still important.”
Practical implementation and lessons from AI adoption
Real-world implementation of AI in legal practice provides valuable insights for firms considering their own transformation. At Ashurst, Ms Goodier explained that the firm’s approach began with comprehensive experimentation.
In 2024, Ashurst released its Vox PopulAI report, which shares the results of the firm's Generative AI trials (which involved over 400 people spanning 23 offices and 14 countries) with qualitative and quantitative data on its evaluation of the use of GenAI in the legal sector. This extensive testing helped with the implementation process. These trials helped Ashurst become the first global law firm to roll out a legal-focused GenAI platform (Harvey) to all its people across all our offices simultaneously,” she said.
The results also demonstrated widespread adoption, with more than 95% of Ashurst’s workforce having completed their AI training. “We haven't focused our technology on one tool. We leverage a wide range of cutting-edge technology tools and platforms and innovative approaches. We work with clients to choose and deploy the best fit, best tech for them,” Ms Goodier explained.
However, successful implementation required addressing cultural resistance. “An obstacle to adoption in law firms can be the risk-averse nature of lawyers,” acknowledged Ms Goodier, who explained that the solution to this was human-centred change management. "A key lesson learned from our GenAI rollout was that a human-centred, experience-led approach was essential for our people to be curious about using AI. Creating a culture of curiosity and learning helps break down the barriers to adoption,” she said.
Rethinking legal education: Preparing tomorrow’s lawyers
The transformation of law firm structures creates profound implications for legal education. If traditional graduate roles disappear, how do aspiring lawyers develop the practical skills necessary for successful careers? This challenge requires new levels of collaboration between law schools and legal practice.
“In the past, we have had a strong focus on teaching students legal doctrine and the black letter law," said Prof. Legg. "One thing which some people don’t focus on enough is teaching students practice skills or practical skills. If AI is taking away that introductory type of work, that’s where both your law school and your law firm have to start to think about, ‘how do we fill that in?’”
Learn more: How to avoid the ethical pitfalls of artificial intelligence and machine learning
The solution requires a two-pronged approach within law schools. Prof. Legg said the first focus should be on digital literacy and making sure students understand how to use different kinds of technology tools. “The second priority is to make sure that we don’t go too far and have them all thinking that they don’t need to think for themselves anymore, because the technology will do it for them,” he said.
“Those human, interpersonal skills are what set them apart,” said Prof. Legg, who explained that an emphasis on human skills reflects a strategic reality. “As a human lawyer, you need to be able to do the stuff that the tech can’t. That’s the way that you differentiate yourself, and you then become valuable.”
However, law schools can only accomplish part of this transformation. “You can’t really develop practical skills other than in practice,” Prof. Legg observed. “So law firms or organisations that employ lawyers have to recognise that we can take it so far, but they also have to make sure that they’re responding to this change.”
Mentoring becomes crucial in this new environment. “You really do need your senior lawyers taking the time to pass on their knowledge. And a lot of that is related to good judgement. As a senior lawyer, I know that this might be a better step or it is going to better meet the client’s needs than some other option,” said Prof. Legg, who said the challenge part of this is making this knowledge transfer explicit.
“What you need is the senior lawyer to stop and think: ‘Why do I say that?’ and maybe explain it to a junior lawyer, but perhaps include them more in the conversation about how you came to that conclusion, and so that then means that the knowledge gets shared.”
Ms Goodier underscored Prof. Legg’s point about the importance of career development in the age of AI. “I don’t think AI impacts career paths for lawyers as much as it impacts what and how lawyers will learn. There is no doubt we are going to have to be more deliberate at creating and harnessing learning opportunities, but ideally, it will create more opportunities as lawyers develop a broader set of skills and leverage AI to augment their productivity and learning,” she explained.
Rather, she suggested that AI adoption might actually accelerate professional development. “Lawyers should be able to get involved in more complex work more quickly, and those who master the augmentation of legal and digital skills will be in higher demand,” said Ms Goodier. “These are the conversations we are currently having, and our graduates and junior lawyers are excited by the opportunity and what this means for their future career, learning and skills development.”