Days of deferred bonuses numbered?
The recent case involving Davy Stockbrokers may spell the end of deferred bonuses in Ireland.
Eamon Finnegan, a former equity dealer, took Davy to court (and won) over its failure to fork out over €260k in unpaid bonuses. The judge deemed that the true purpose of the bonuses was to create a financial restraint preventing Finnegan quitting for a rival firm.
The case could sound the death knell for deferred bonuses in the Republic. Siobhra Rush, an associate in employment, pensions and benefits group at Matheson Ormsby Prentice, says bonus structures may need to change in future: "That the bonus had already been earned and had been deferred was significant for the judge."
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. Instead, he ruled that the deferred bonus payment condition was
onerous and operated as a form of forfeit if an employee went to work for a
competitor.
Davy, meanwhile, had claimed that the payment of bonuses was entirely discretionary
and that it was fully entitled to alter the terms and conditions relating to their payment.
"There are two major elements in this case," says Rush. "Firstly, any employer that is
changing the structure of its bonus payments should notify employees in
writing. Secondly, if employers are deferring payment of bonuses already
earned and are doing so on the basis that employees will have to stay with that
company or not leave to work for a competitor, then they need to look at
whether this constitutes restraint of trade."
Davy will now have to enter into talks with Mr Finnegan former to decide the total figure due to him in deferred bonus payments, plus interest.
It's believed other similar cases may be in the pipeline as a result of the High Court decision. Watch this space.
