If you’re a law firm partner making decisions about your practice in 2026, AI might be generating more questions than answers about billing, staffing, and how clients are thinking about the services they pay for.

AI is far from a cut-and-dried issue for law firms. Ninety percent of legal work is still billed by the hour, and clients are pushing back against invoices from firms that have publicly adopted AI.

The reality is that AI’s footprint in the legal industry is expanding rapidly. We’re seeing a fundamental shift in how firms approach tech spending and operational strategy, signaling a transformation that goes far beyond the headlines.

AI and the legal industry: what rainmakers need to know

Although the legal industry is often viewed as slow to adopt technology, AI may be the exception to that truism. The 8am 2026 Legal Industry Report, which surveyed over 1,300 people in the field, found that the number of lawyers using AI more than doubled in just one year, jumping from 31% in 2025 to 69% in 2026.

Similarly, Thomson Reuters surveyed professional services businesses. Within the legal industry:

AI adoption jumped from 14% to 26% among legal groups between 2024 and 2025
45% of law firms use GenAI or plan to make it central to their workflow within the next year
39.3% growth in legal tech spending occurred between 2021 and 2025, with the biggest surge in 2025

However, institutional best practices and processes for AI use aren’t necessarily keeping up with adoption. The above-mentioned 8am report found that 43% of firms have no official rules for using AI and only 9% have a written policy that they actually follow.

Not all firms are using the same AI or in the same way

While some AI tools are available to everyone, giving smaller firms more power, some big firms have poured money into proprietary tools. For example:

Kirkland & Ellis invested $500 million to build their own private AI platform.
Cleary Gottlieb acquired generative AI company Springbok in March 2025 to build custom AI solutions in-house.
Freshfields struck a co-development deal with Anthropic in April 2026, deploying Claude across 5,700 employees while jointly building legal-focused AI workflows.

This creates a split between firms that can afford to build AI into their core business and those that can only use it for basic tasks.

AI missteps in the public eye

AI adoption is on a fast trajectory in the legal industry, but it’s accompanied by plenty of misuse and missteps.

Law360’s AI tracker documented 280 hallucination incidents in U.S. courts through the end of 2024 and more than 729 by the end of 2025. By April 2026, the Charlotin AI Hallucination Cases Database had cataloged 915 U.S. court cases, with incidents growing from roughly two per week in early 2025 to two to three per day by late 2025.

This is happening across all tiers of firms, even at the very top. For example, a top partner at Sullivan & Cromwell had to send a three-page letter to a judge because a legal document they filed contained more than 40 fake citations created by AI.

Question 1: what does AI mean for law firm billing and client relationships?

Despite heavy AI investment, firms remain stuck in a pricing deadlock. They struggle to reconcile technology-driven efficiency with traditional billing and compensation models, leaving firms caught between client demands for cost savings and the need to prove value without eroding their revenue.

Rates are up, but efficiency gains aren’t following

For years, law firms have been raising their prices faster than they’ve improved their efficiency, and clients are starting to push back.

According to the 2026 State of the U.S. Legal Market, the average hourly rate for top-tier (Am Law 100) firms topped $1,000 in 2025, compared with about $600 for other firms. Because of this, some clients are sending work to less expensive, mid-sized firms that can provide the same quality of service.

The same report notes that profits for top-tier firms have jumped by over 53% since 2019, mostly due to these price hikes rather than real gains in efficiency. Even though firms are investing heavily in new technology like AI, they haven’t yet proven that these tools are actually lowering costs for their clients.

Clients are starting to push back

Clients have noticed these trends. A report from the Positive Group highlights that clients expect lower bills when firms use AI, but they also demand more human oversight. This creates a dilemma for firms hoping to use AI to boost their profits.

The question of how to price AI-driven efficiency gains remains unsettled:

Firms that charge the same hourly rates while using AI to cut hours face pushback from clients who expect to see savings passed through.
Firms that raise rates to protect margins while investing in AI face the same pushback from a different direction.

Neither path has led to a clear market standard.

What hasn’t changed: relationships still drive origination

Both firms and their clients are seeking a new way to value legal work in an era when software does more of the heavy lifting.

Clients are feeling more pressure than ever to cut legal costs, and they’re looking much more closely at their bills to see where they can save money. Even if a client deeply trusts your work, they may eventually notice the gap between your hourly rates and the lower fees charged by competitors who use AI to work efficiently. This could quickly become a source of tension in your relationship.

Don’t wait for clients to audit your value. Instead, use these relationships to proactively demonstrate how your firm is leveraging technology to protect their margins.

Question 2: what happens to the associate pipeline?

The early years of working in the legal profession can be grueling, but they’re also hugely important in shaping new generations of attorneys. But with AI promising to cut the rote, routine legal work that makes up an associate’s daily to-do list, the traditional path for young lawyers is changing. This shift in the pipeline is now a key concern for partners managing their teams.

This isn’t to say that law firms aren’t still hiring. According to the Decipher 2026 Annual Report, lateral hiring rose 15% year-over-year in 2025. These experienced hires accounted for nearly half of all new associate positions.

However, the share of hires coming straight from law school dropped to 38%, down from 46% in previous years. This trend shows that firms are increasingly choosing to hire seasoned talent over beginners. Because AI is now automating many of the basic tasks once handled by junior staff, firms have less need for entry-level associates to handle the high volume of routine work.

Some firms are taking a proactive approach to training

A few firms are working on it deliberately. For instance, Ropes & Gray’s TrAIlblazers program lets first-year associates count up to 400 hours, roughly 20% of their annual billable target, toward AI training and experimentation rather than client work.

And Latham & Watkins runs a mandatory two-day AI Academy for its entire incoming first-year class; more than 400 associates attended the 2025 session, which covered how partners use tools like Harvey and Copilot and brought in outside voices from companies like Meta.

But firms like this are the exception right now.

What are long-term projections saying?

Two-thirds of large firms expect AI to influence how they balance their teams, specifically the number of partners relative to associates, by 2035, according to Citigroup/Hildebrandt Consulting. Decipher projects a 6% dip in associate movement in 2026, as firms lean on technology investments to adjust their staffing needs.

Question 3: what does this mean for your practice?

The legal industry is changing faster than the old rules and business models can keep pace with. For partners, the real question isn’t whether AI will affect your practice, but where you need to adapt first.

Demand is shifting between firm tiers

There is also a significant trend in client demand. In the second half of 2025, mid-sized firms grew by nearly 5%, while the nation’s largest firms struggled to grow by 2%, the largest differential since the 2008 financial crisis.

Clients are increasingly moving routine, budget-conscious work to mid-sized firms that can offer high quality at a lower cost, often because these firms are using AI to work more efficiently.

Whether this becomes a permanent trend remains to be seen, but the firms that invested in these tools early are already gaining a clear advantage over those still waiting to act.

The competitive edge is human

According to the 2026 Report on the State of the US Legal Market, firms with a formal AI strategy are 3.9 times more likely to experience measurable benefits compared to firms without one.

This success rate suggests that the advantage isn’t just about the technology itself, but how firms choose to deploy it.

Firms with a formal strategy are better able to rethink their entire service model. They can move from asking “How can we use AI to bill for fewer hours?” to “How can AI free us to deliver more value?” By offloading repetitive, low-margin tasks to automation, these firms are intentionally creating space for their lawyers to double down on the high-level judgment and strategic advisory work that is difficult to automate and most prized by clients.

The bottom line: stay focused on what matters most

AI in law is one of those topics where the conversation has outrun the evidence. There are genuine developments worth paying attention to, and a lot of commentary that is either too alarming or too optimistic to be useful.

You don’t need to panic, but you do need to be intentional. The fundamentals of a successful law practice (e.g., deep expertise, client relationships, and business development practices) remain your most valuable assets. AI is a tool, not a replacement for your professional judgment.

Instead, focus on finding ways (whether via AI or other strategies) to free up your time to do exactly what your clients value most: high-level strategic counsel and the personal, human connection that algorithms simply cannot replicate.

If you’d like to talk through where your practice sits in this market, I’m happy to have that conversation.