A US law firm that bills by the hour should start AI on the associate work it already writes off, and count the hours freed there against next year's associate hiring plan.
The 2026 Report on the State of the US Legal Market, published January 7, 2026 by the Thomson Reuters Institute and Georgetown Law's Center on Ethics and the Legal Profession, draws on reported results of 184 US law firms, 76 of them Midsize, meaning ranked outside the Am Law Second Hundred, in data from Thomson Reuters, which sells software and tools to legal professionals. It finds associates' realization rates the lowest on average at 85.6% and their work already being written off at a significant pace. The report reads that as a buffer in which AI can absorb the inefficient portions without touching collected revenue, and says firms can automate the unpaid work while keeping associates busy on higher-value tasks. It gives the 85.6% once, as an associate average with no split by firm size, and names no realization measure.
In Formal Opinion 512, issued July 29, 2024, the ABA's ethics committee says lawyers who bill an hourly rate must bill for their actual time; such opinions are advisory and not legally binding, the Jenkins Law Library notes, so the firm should also check its state's rules. Read with the report's buffer, the rule sets a ceiling: on hourly work, hours AI saves on a task cost no collected fees up to that task's written-off hours, and past that point each saved hour comes off the bill.
In month one the director of billing exports a year of associate time entries by class year and task code, or by narrative where tasks are uncoded. The CFO ranks task types by hours not collected: hours cut at pre-bill review, plus, on each invoice left partly unpaid, the same unpaid share of every entry's billed hours. Practice group leaders strike drafting kept unaided for first- and second-year associates so they learn it. The firm's general counsel checks affected clients' engagement terms and outside counsel guidelines, since the opinion says lawyers must disclose their GAI practices where those require it or a client asks, and obtains the informed consent the opinion requires before information relating to the representation goes into a self-learning tool. In month two AI goes on the top task, with the supervising partner reviewing every draft. At the end of month three the director of billing compares hours recorded and hours cut at pre-bill review per matter on that task with the same months a year earlier, adding collections as they arrive.
The opinion also says a lawyer should treat as overhead, not charged to the client absent advance disclosure, the cost of a tool that functions similarly to equipping and maintaining a legal practice. The CFO sets the hours freed, and the tool cost the firm carries, against next year's associate hiring plan, which tests whether the higher-value work the report expects is there. An operating partner can ask every legal services business in a portfolio that bills hourly for the same list and tool cost.
The report finds that aggressive hiring in 2021 and 2022 raised Midsize firms' direct expenses by double digits while more limited pricing power kept them from raising rates as hard as larger competitors, and that after demand softened in late 2022 and inflation crept in, they regained their 2021 peak profit per lawyer only in 2025. Since January 2023, the average Midsize and Second Hundred firm has grown their total headcount by more than 8%.
