A brand new Thomson Reuters Report reveals a basic disconnect between what legislation corporations consider about AI and what purchasers might quickly demand. This disconnect exposes an uncomfortable reality for corporations: future authorized work would require much less time with fewer legal professionals and, conceivably, much less income. It creates a niche can’t be closed just by elevating charges and chopping bills. As an alternative, it might require a unique enterprise mannequin altogether.
The Thomson Reuters Report
The report is entitled 2026 Report on the State of the US Authorized Market and was performed in partnership with Georgetown Law Center on Ethics and the Legal Profession.
Thomson Reuters (TR) is a big authorized vendor and has invested closely in GenAI instruments. With many distributors, that usually would imply taking a look at studies like this with some skepticism. However I’ve discovered the TR studies and evaluation to normally be sound and well-reasoned. This one is not any exception.
Some Key Information
The TR statistics are revealing.
In keeping with the info, “The typical legislation agency celebrated 13.0% revenue development in 2025 [with] corporations of all totally different styles and sizes discovering methods to capitalize on alternatives.” It’s the strongest demand development in additional than a decade. Work and income are pouring in.
Because of this, corporations are racing to capitalize by loading up on expertise and expertise. Expertise spending is up practically 10% and expertise prices up 8.2% over 2024. Hourly charges have additionally elevated dramatically.
Income are additionally hovering and to be blunt, companions are sitting fats, dumb, and completely satisfied. In keeping with the report, many have concluded that throwing cash at expertise and expertise, elevating charges, and watching the income roll in is figuring out simply high-quality. There’s no purpose to vary something.
However there’s extra to the story.
A New Sheriff in City
There’s a brand new sheriff on the town and it’s referred to as AI. For harried GCs who want to cut back spend, AI often is the effectivity instrument to do exactly that. If GenAI can scale back the lawyer’s time spent on a given job from 25 hours to 10, for instance, that’s an actual financial savings. Run that throughout all issues and also you’re speaking actual cash.
Right here’s how TR places it:
Now, using superior AI-driven expertise like generative AI (GenAI) represents one thing totally different: A expertise that may draft briefs, analyze contracts, and synthesize case legislation in methods that may really alter how authorized work will get performed. For an business that’s operated primarily the identical manner since Langdell launched the case technique within the 1870s, that is uncharted territory.
Hassle on the Horizon
However TR gives some extra information that would spell bother. First, “The surge in demand that’s lifting income to file heights stems not from financial well being however from chaos — commerce wars, regulatory upheaval, and geopolitical tensions – all of which require fixed authorized navigation.”
However “corporations are spending like the present income circumstances signify a everlasting shift moderately than a brief spike.”
And “many GCs are discovering themselves squeezed, with stagnant budgets having to one way or the other stand up to the elevated weight of the second.” Many GCs are signaling that large cuts could also be forward. Because of this, TR predicts a big correction could also be within the offing.
Okay, we’ve seen this earlier than. Suppose 2007 earlier than the nice recession. Or 2021 earlier than the inflation tsunami. However this time there could also be a extra basic and long-lasting change.
The Response? Meh.
The legislation agency response? TR labels it “defensive.” Companies view the decreased hours now spent on issues because of AI as one way or the other being price extra since they won’t include extra strategic evaluation and fewer doc drafting. So, the reasoning goes, they’ll simply increase charges to make up the distinction.
However, as TR succinctly describes, the rub is “purchasers might not agree, and corporations aren’t but making this case confidently.”
And it’s a tough case to make. A lot of the 15 hours saved in our instance was doubtless work of associates so the ultimate 10 hours of a associate ought to have already been of strategic worth.
Furthermore, the billable hour mannequin is predicated on time spent. The reality is it took much less time by greater than half. You possibly can’t increase your charges so that you simply get the identical quantity of income whenever you didn’t work as a lot.
And, if you happen to might simply increase charges to make up the distinction in income, the consumer will get no profit from AI effectivity. Don’t assume they’ll purchase that.
The opposite drawback is that the mathematics doesn’t work. Let’s assume a lawyer payments $300 per hour. A short takes 25 hours to jot down. If that lawyer does all of the work, their invoice for the transient can be $7,500. However with AI, the precise lawyer time to organize the transient is now 10 hours. To generate the identical quantity of income, the lawyer would want to boost their price to $750 an hour.
That’s greater than double. Now run that throughout a whole agency and all issues and you may see the issue. Already budget-conscious purchasers sooner or later are going to attract the road and never approve price will increase, will increase the corporations say they should preserve the identical revenue ranges:
Purchasers aren’t wanting to see all their productiveness advantages circulate straight to legislation agency income. Nor are they ready for the sticker shock of a $2,000 hourly invoice from an affiliate, even when what they’ve achieved in that point might have taken 10 hours to finish beforehand.
TR labels this an absurd pressure: “a full 90% of all authorized {dollars} nonetheless circulate via customary hourly price preparations — the identical billing construction that’s dominated for the reason that Fifties. This creates an nearly absurd pressure that sees corporations deploying expertise that may accomplish in minutes what as soon as took hours, then attempting to invoice for it by the hour.”
So, corporations might merely not have the ability to generate the identical quantity of income.
And if TR can be proper a couple of coming downturn in demand, that may additional constrain legislation corporations. They received’t have the ability to shut the income hole with elevated work. And don’t overlook, AI can be enabling GCs to do increasingly more in-house.
Let’s Simply Reduce Prices
That leaves chopping bills. Utilizing AI to chop back-office expense helps some nevertheless it might not be sufficient to offset what could possibly be a big income loss.
And chopping affiliate expense, alternatively, means fewer hours billed and even decreased high quality. And long-term contracts and leases scale back different cost-cutting alternatives. To not point out the truth that in line with TR, corporations have already spent roughly like drunken sailors on expertise and expertise considering the current growth time will proceed.
Actually, there may be purpose to query whether or not GenAI will actually make the impression many declare, as Melissa Rogozinski and I’ve written in our multipart series. However placing all of the TR conclusions collectively suggests an ideal storm that leads inevitably to at least one conclusion: decreased income and wish for legal professionals.
However there’s a manner out.
A New Actuality
The above situation, if right, hinges on one factor: the continued wholesale reliance on the billable hour mannequin. So long as income and revenue rely upon the variety of hours billed, there’s no escaping the likelihood that AI instruments might scale back the time wanted to be spent, billable hours, and correspondingly, revenue and income.
And when that occurs, associate attracts are decreased. When you’ve ever sat via a companions assembly the place it’s reported that outcomes didn’t meet finances, hell hath no fury like what occurs subsequent.
However if you happen to transfer away from a enterprise mannequin primarily based on hours billed to at least one primarily based on worth offered, the matrix adjustments. A price-based system focuses on issues like various billing fashions that incorporate notions of publicity and threat sharing in figuring out charges. Success-based charges and bonuses enable corporations that deliver true worth to purchasers to be rewarded primarily based behind schedule spent however on the worth they supply.
Such a transfer requires a cultural shift that received’t be straightforward.
The Tradition Shift
This sort of change would require a sea change in agency tradition. That tradition now rewards through compensation and development those that spend extra time working a matter as an alternative of much less. A change to a value- and results-based mannequin will likely be a tall order for legislation corporations who equate hours billed with capability. It additionally means taking a look at profitability otherwise.
TR places it this manner: “[It] means modernizing pricing fashions that now not match how authorized work is completed, strengthening consumer belief in an atmosphere by which authorized consumers are more and more selective, and deploying expertise in ways in which ship measurable worth moderately than advertising and marketing gloss.”
None of that will likely be straightforward. It has to start out with corporations taking an extended exhausting have a look at studies like these offered by TR and recognizing some powerful realities. It means altering how they’ve performed issues for the reason that Fifties and the one system they know.
It means shifting from a mannequin that’s introduced unfathomable riches. It could imply some financial hits and decreased expectations which can be uncomfortable. Maybe hardest it means altering legislation agency tradition from high to backside.
However for many who plan and work exhausting to shift, it might imply survival.
Stephen Embry is a lawyer, speaker, blogger, and author. He publishes TechLaw Crossroads, a weblog dedicated to the examination of the strain between expertise, the legislation, and the follow of legislation.
