Market Court rules against payment term of over 30 days in roadwork subcontracting

“Treating small machinery contracting companies as banks by extending payment terms is a breach of the Payment Term Act,” says Matti Peltola, CEO of the machinery contractor association Koneyrittäjät.

In a ruling on 12 May, the Market Court prohibited the company YIT Road Oy from using payment terms greater than 30 days in road maintenance subcontracting.

In a press release about the Market Court’s ruling, Koneyrittäjät said that payment terms longer than 30 days could not be applied in the general contractual terms presented in the “YIT Maintenance subcontracting programme” document, or in subcontracting agreements made with subcontractors with an annual turnover of less than €2 million.

Tiina Toivonen, Legal Affairs Manager at Suomen Yrittäjät, the Finnish SME association, says the Market Court’s ruling is significant for small business owners.

“Even though the ruling can’t be automatically applied to every company contract, it provides a good framework for B2B payment terms of over 30 days being unreasonable for a small business owner and thus illegal,” Toivonen says.

“In its ruling, the Market Court found that YIT Road Oy had refused to agree to the industry’s customary 14- or 30-day payment terms in several cases to bolster its own financial position, which meant it abused the subcontractors’ dependent position on YIT Road Oy, at least to a certain extent. The part of YIT Road Oy’s payment terms that exceeded 30 days were thus bound to reduce its contractual partners’ – SMEs’ – competitiveness and solvency,” Toivonen says.

The Market Court’s ruling can be appealed to the Supreme Court if leave to appeal is granted.

Immediate fine

The prohibition ruled by the Market Court must be fulfilled immediately on pain of a €200,000 fine.

“The Market Court’s ruling shows that the payment term is unreasonable, even if it were expressly agreed upon, if there was no objectively valid reason for the term. The main contractor’s treatment of a subcontractor as their bank is not such a reason,” Koneyrittäjät says in its statement.

“Reasonable payment terms must not depend on individual court cases, when thousands of small businesses are at stake. The Payment Term Act must be amended to improve the position of small businesses as creditors in relation to large businesses. A payment term should never exceed 30 days when the debtor’s turnover is dozens of times bigger than the creditor’s turnover, or the creditor is otherwise financially dependent on its client, a large company,” the Koneyrittäjät press release continues.

“Prompt payment is in everyone’s interest. The Government should create the frameworks and boundaries for this.”

The recent Yrittäjägallup survey from Suomen Yrittäjät found that 57% of SME respondents said that payment terms of over 30 days which they were subject to had not been agreed in the statutory fashion.

Read more: Illegal extension of payment terms more widespread

Are you a Suomen Yrittäjät member yet? Read more about member benefits and advantages!