Believe it or not, but there's a decision by the Supreme Court of the United States which addresses reimbursement for work performed by paralegals. In Missouri v. Jenkins, 491 U.S. 274 (1989), Justice Brennan ruled that fee awards for services by paralegals and law clerks should be based on market rates. One may argue that this decision is at least in part responsible for the growth of the paralegal job market.
In 1977, the Plaintiffs filed a suit alleging that the State of Missouri and certain school districts perpetuated a system of racial segregation in Kansas City. The State and Kansas City Missouri School District were found liable after a trial of more than 7 months. The Defendants were ordered to make $260 million in capital improvements and implement a $200 million magnet-school plan. The Plaintiffs sought reimbursement for 16,000 hours billed by paralegals and law clerks The District Court issued an award using current rather than historic rates and the Court of Appeals affirmed. The market rate in 1988 was $40 per hour for paralegals and $35 for law clerks.
Justice Brennan ruled that the 11th Amendment does not prohibit a state from being compelled to pay enhanced attorney fees in order to compensate for a delay in payment. He found that a use of current rather than historic rates was within the contemplation of Civil Rights Attorney's Fees Awards Act of 1976, 42 U. S. C. § 1988
The Defendants contended that paralegals and law clerks should be billed at their cost to the attorney, rather than at market rates, and that this cost would be $15 per hour based on their salary, benefits, and overhead. Justice Brennan disagreed and found that, "if the prevailing practice in a given community were to bill paralegal time separately at market rates, fees awarded the attorney at market rates for attorney time would not be fully compensatory if the court refused to compensate hours billed by paralegals or did so only at 'cost.'" Missouri, 491 U.S. at 287. He concluded that the use of lower cost paralegals is encouraged by market rate billing and reduces the cost of civil rights litigation, furthering the policies underlying civil rights statutes.
Justice O'Connor dissented in part, joined by Justice Scalia, disagreeing that the Eleventh Amendment permits enhancement of fees as compensation for a delay in payment but agreeing that paralegals could be billed at market rates under 42 U.S.C. § 1988.
Only Chief Justice Rehnquist disagreed with the majority's opinion on the rate at which paralegals could be billed. "Because law clerks and paralegals have not been licensed to practice law in Missouri, it is difficult to see how charges for their services may be separately billed as part of 'attorney's fees.'" Missouri, 491 U.S. at 296. He found that paralegal services should be considered as a form of office overhead such as, "telephone service, stationery, and paper clips". Id. A separate award for paralegal services would constitute double recovery. His dissent even rejected the Defendants' own contention that paralegal services could be recovered at cost. The statute in question only refers to, "a reasonable attorney's free as part of the costs". 42 U.S.C. § 1988. He would limit the recovery of costs to those listed under Federal Rule of Civil Procedure 54(d) and 28 U. S. C. § 1920.