A British court has ruled that an employment agency supplying pilots to Ryanair was not entitled to impose a €5,000 penalty on pilots for failing to work out three months' notice.
British Queen's Council Mr Justice Hand described the employment arrangements as "not straightforward".
He strongly criticised the evidence of the Commercial Manager of the agency - Brookfield Aviation International Limited.
Dutch pilot Robertus van Boekel flew Ryanair planes from the Charleroi base in Belgium from September 2009 until July 2011, but was never directly employed by the airline.
Instead, Ryanair had a contract with Brookfield Aviation International Limited, which in turn arranged employment for the pilot.
However, under the arrangement, each pilot had to choose a firm of accountants from a list nominated by Brookfield Aviation.
The accountants would then set up a "service company" of which the pilot would become a director and shareholder.
The pilot would also be regarded as an employee of the company for the purposes of tax treatment by the Irish Revenue Commissioners.
The individual pilot's service company would then enter a contract with Brookfield to supply pilot services - in this case to Ryanair.
However, the contract contained a provision that if the pilot did not give three months' notice of termination, a penalty of €5,000 would have to be paid.
It was unclear whether the service company or the pilot personally would be liable for the penalty payment.
When Mr van Boekel decided to cease flying with Ryanair, he applied for leave entitlements that would have permitted him to depart on 27 July 2011.
However, Brookfield told him that his entitlement to leave was automatically cancelled on resignation.
The company said that he would have to work until 17 August 2011, and that his failure to serve the full three-month notice period would lead to him being charged a penalty payment of €5,000.
Brookfield Aviation had sued Mr Van Boekel for payment of that penalty.
Mr Justice Hand said that the €5,000 "penalty" was included in the contract to deter pilots from breaching it, and was unenforceable in English law.
The judge rejected claims by Brookfield Aviation that the €5,000 payment was to offset additional costs incurred by a pilot leaving early.
He also found that the contractual obligation to pay the €5,000 would have fallen on the service company, and not on the individual pilot.
He rejected the testimony of Brookfield Aviation's Commercial manager Declan Dooney that the whole purpose of the complex employment arrangement was to ensure that the pilot paid tax and insurance contributions in Ireland.
The judge decribed Mr Dooney as a "voluble and freqently glib witness, who for the most part was not telling me the truth."
Mr Van Boekel's solicitors Bates Wells Braithwaite described the case as significant in providing an insight into how Ryanair engages its pilots.
Ryanair said it did not comment on legal cases which do not involve Ryanair.
It also said that the judge's comments stating that he was not convinced that "the whole purpose" of the employment arrangement was to ensure that pilots paid tax and social insurance in Ireland related only to some evidence given by Brookfield, which had no bearing on whether the defendant pilot in this case was liable to pay the claimant for his breach of contract.
Brookfield Aviation International was contacted for comment but none was issued.
According to the judgement, Brookfield has pursued pilots for the €5,000 payment in 11 other similar cases.