AI Reshapes Traditional Billing Practices in Law
Canadian law firms are grappling with a fundamental shift in their business model as artificial intelligence accelerates legal workflows. With many firms still operating on the basis of billable hours, AI is challenging the very foundation of how legal services are priced and delivered.
Billing by the hour has long been the norm in the legal industry, particularly among major firms. However, this model is increasingly under scrutiny. A recent survey by B.C.-based legal tech firm Clio found that more than 70% of legal clients prefer flat-fee billing over hourly rates. As AI tools streamline document review and contract analysis, it’s becoming harder to justify charging clients for tasks that now take a fraction of the time.
Flat Fees Gain Traction
The shift is already visible in the data. According to Clio, the share of law firm revenue derived from hourly billing dropped from 85% in 2016 to 81% in 2023. Flat fees are stepping in to fill the gap, driven by client demand and the productivity gains enabled by AI.
Andrew Roy, an Alberta lawyer who experimented with alternative pricing models, found success offering clients a menu of services. For example, preparing launch documents for a non-profit organization would cost $1,500, while a shareholder agreement might run $1,000. “If AI lets me review four contracts in the time it used to take to review one, both the client and I benefit from a flat fee of $200 per contract,” said Roy.
While Roy has since transitioned to a general counsel role, he believes the math speaks for itself: “It has major implications for the economics of law going forward.”
Resistance From Large Firms
Despite these trends, many large Canadian law firms remain committed to the billable hour. The most lucrative firms, often based in Bay Street towers, charge more than $500 per hour for mid-career lawyers. These rates often outpace inflation, providing little incentive to adopt alternative billing models.
Monica Goyal, vice president of legal innovation at Briefly Legal Support, notes that AI is particularly effective in standardizing repetitive legal documents like non-disclosure agreements. “There’s been a lot of interest from lawyers in AI,” she said. Yet she acknowledges that shifting away from hourly billing represents a major cultural and operational change.
Alternative Fee Arrangements on the Rise
David Cohen, chief transformation officer at Dentons Canada, anticipates that 2026 could be a pivotal year for law firms adopting alternative fee arrangements (AFAs), including flat and contingency fees. “There’s a strong correlation between clients asking about our use of AI and those asking about AFAs,” he said.
While Cohen doesn’t foresee a complete end to the billable hour, he envisions a hybrid model where high-stakes legal work is priced using a mix of billing strategies. “Each hour could become more valuable, but the way we structure those hours will evolve,” he added.
Smaller Firms Lead Innovation
According to Scott Stevenson, CEO of legal AI company Spellbook, smaller and mid-sized firms are more agile when it comes to experimenting with new pricing models. “They’re more willing to test flat fees and other alternatives,” he said. Many lawyers are also using AI to offload mundane tasks, freeing up time for more complex and billable work.
However, firms must tread carefully. Clients may balk at seeing itemized charges for AI usage on their invoices. “Managing client expectations is key,” Goyal emphasized.
Financial and Ethical Implications
Legal tech company Thomson Reuters warns that the costs of implementing AI are rising faster than the fees firms can charge. Their 2026 report noted, “The GenAI investments that justified premium pricing now demand premium spending, exactly when firms should be conserving cash.”
Beyond finances, there are ethical concerns. Ontario judges have reprimanded lawyers as far back as 2018 for charging exorbitant fees for tasks that could have been completed more efficiently with technology.
Jennifer Leitch, executive director at the National Self-Represented Litigant Project, believes flat fees could improve access to justice. “Most middle-class Canadians can’t afford extended legal representation. Offering unbundled services and predictable pricing could help,” she said.
AI’s Broader Impact on the Profession
The debate extends beyond billing. Some fear AI could eventually replace certain legal roles altogether. A recent product launch by AI firm Anthropic triggered a stock sell-off in the legal software sector, underscoring the perceived threat.
Meanwhile, Allan Ritchie, chair of business law firm Loopstra Nixon, noted that clients sometimes arrive with AI-generated documents, hoping to reduce costs. However, these documents often contain errors, requiring additional lawyer time to correct. “It’s a revolution in how some lawyers practice, but not necessarily in the business model,” he said.
This article is inspired by content from Original Source. It has been rephrased for originality. Images are credited to the original source.