For decades, the billable hour has stood as the cornerstone of legal practice – but a new report warns that it’s cracking under the weight of mounting pressures, from evolving client demands to the disruptive force of technology reshaping Australia’s legal market.
Once the unshakable bedrock of legal practice, the billable hour is now under intense pressure, as new technologies and shifting client expectations reshape the economics of Australia’s top law firms, according to a new report from Thomson Reuters.
Thomson Reuters’ Australia State of the Legal Market 2025 report revealed that while law firms have posted strong financial results in FY2024–25, cracks are starting to appear in the longstanding time-based billing model.
The report also found that large firms are no longer merely trying to catch up with the top 8; they are now serious contenders for the very top of the market, posting higher growth rates and stronger results than some of the top 8 in FY24–25
In FY24–25, demand for legal services at the average law firm grew by 3.6 per cent – a figure largely in line with the 10-year average of 3.7 per cent, but a notable decline from FY2023–24, which saw a 7.5 per cent increase.
The report highlights banking and finance, which surged 9.4 per cent, and workplace relations, up 7.4 per cent, as the standout practice areas propelling this growth.
At the same time, rates climbed more than 4 per cent for the fourth consecutive year, contributing to an 8.6 per cent increase in fees worked.
Yet despite these strong top-line figures, one key metric slipped: utilisation – the number of hours worked per lawyer – declined by 0.7 per cent, falling below the 10-year average of 0 per cent.
The report points to generative AI as a major disruptor reshaping the billable hour, warning that the technology “undermines the value proposition” of traditional time-based billing and could fundamentally change how legal work is valued.
Australian law firms are leading the world in legal technology adoption, ramping up investments to 4.2 per cent per lawyer in FY24–25 – a sharp increase from just 1.2 per cent the year before, signalling a major shift in how firms are embracing innovation.
Melbourne Law School dean, Professor Michelle Foster, warned that the legal profession faces a delicate balancing act: harnessing the opportunities of generative AI while preserving core legal skills and expertise.
“As we learn to embrace and understand the impact and role of GenAI in our profession, the importance of traditional methods of strategy, resilience and foresight in our fast-paced field continues to be of utmost importance,” she said.
While these tools enable lawyers to work more efficiently and provide better services to clients, they also reduce billable hours, prompting law firms to reassess how they assign value to their work.
In response, many firms have focused heavily on aggressively raising their rates. Notably, the report found that the big 8 firms “significantly raised their price per hour” towards the end of the financial year, “effectively doubling” the growth they achieved.
The report highlights that clients are “far more likely” to accept higher rates when they feel they’re “getting more in return”.
To meet these expectations, large firms must place more focus on “attracting and retaining top-tier talent, refining their billing sophistication, and accelerating the integration of technology into their legal service delivery”.
While few have definitive answers to this shift, the report stresses that “what worked in FY2016 will not win in FY2026”, warning that firms clinging too tightly to the billable hour risk being left behind in a market that increasingly values speed, strategy, and delivering real client value.
