The legal victory of a former equity dealer who brought Davy Stockbrokers to court over its failure to pay some €260,000 in unpaid bonuses should serve as a warning to employers who operate a similar bonus scheme, according to a leading employment law expert.

Eamon Finnegan won his High Court action against Davys at the end of January after Mr Justice Thomas Smyth found that the real purpose of the deferred bonus payments at Davys was to create a financial restraint on an employee going to a competing stockbroking firm.

The judge rejected arguments that the deferred scheme was necessary to protect a genuine proprietary interest of the firm and ruled that it was a contract in restraint on trade. The deferred bonus payment condition was onerous and operated as a form of forfeit if an employee went to work for a rival, he said.

The Davys decision may have an impact on the way bonuses are paid and has highlighted the importance of making employees clearly aware of any changes in bonus structures, said Siobhra Rush, a senior lawyer in the employment, pensions and benefits group at Matheson Ormsby Prentice.

"Bonus structures of this type may change," she said.

"That the bonus had already been earned, but had been deferred was significant for the judge."

Mr Finnegan claimed that his arrangement with Davys between 1995 and January 1998 was that he would be informed at the end of the year what his bonus would be. That bonus would be paid the following month or at a time suitable to him, he said.

However, he claimed, that situation was unilaterally changed by Davys from 1998, when he was told that the bonus would be paid in instalments and was conditional on his remaining with Davys.

The judge said he was satisfied that in 1997, 1998 and 1999 Mr Finnegan had not consented to terms of employment involving a deferred bonus system.

The deferred payment scheme had been introduced without notice to Mr Finnegan and amounted to a contract in restraint of trade, the judge said.

Mr Finnegan worked for Davys for 10 years until September 2000, by which time, he claimed, he was owed some ... €260,000 in unpaid bonuses that had been agreed with the company.

However, Davys had refused to pay those sums.

The stockbroking firm had claimed that the payment of bonuses was entirely discretionary and that it was entitled to change the terms and conditions relating to the payment of them.

"There are two major elements in this case," Ms Rush said.

"Firstly, any employer that is changing the structure of its bonus payments should notify employees in writing in advance of any change. That also means in advance of the financial year that the bonus is to be earned, not during that year.

"Secondly, if employers are deferring payment of bonuses already earned and are doing so on the basis that employees will have to stay in their employment or not leave to work for a competitor, then they need to look at whether this constitutes an unlawful restraint of trade."

Bonuses are constituting a greater part of overall remuneration packages in Ireland, mirroring trends in the UK and US, and are especially typical in the financial sector.

The proportion of remuneration paid in bonuses is set to rise even further this year in the sector as it struggles to retain staff in a tight labour market, a recent Mercer survey showed.

Davys will now have to enter into talks with its former employee to decide the total figure due to him in deferred bonus payments, plus interest.

It is believed other similar cases may be in the pipeline as a result of the High Court decision.