Firms’ reliance on the hour as their billing currency emerged in the 1950s. In the country’s early history, state law strictly limited legal fees, which were generally paid by the losing side in a case. Lawyers supplemented their income with bonuses from satisfied clients—like tips for a waiter—or with annual retainers. As economic regulation fell out of political favor in the 19th century, however, such maximum-fee laws were repealed. By the early 20th century, lawyers used a combination of billing methods: set fees for particular tasks, annual retainers, a discretionary “eyeball” method, and contingency fees, which the ABA approved as ethical in 1908. They rarely billed by the hour.
In the late 1930s and 1940s, state bar associations eager to hike legal fees started publishing minimum fee schedules that set standard prices for different services. The schedules would “suggest” one fee for handling a contested divorce, for example, and another for drafting a will. While nominally voluntary, schedules were enforced by the threat of disciplinary action against a lawyer whose fees were regarded as too low. The Virginia State Bar, for example, warned that attorneys who “habitually” charged less than the suggested fees would be presumed guilty of misconduct. The ABA’s model ethical code, which was in effect until 1969, said that it was unethical for an attorney to “undervalue” his legal services.