Don’t ignore the watchdog: Why one security business is facing court for allegedly snubbing a sham contracting probe

A Melbourne-based security business is facing court action and a $51,000 penalty after it allegedly failed to co-operate with a Fair Work Ombudsman investigation into possible sham contracting activity. 

The employment watchdog launched the investigation into Bona Group, trading as Auslink Protective Services, after a security worker lodged a complaint regarding sham contracting activity in a number of the company’s Queensland locations, including construction on the Gold Cost light rail.

The ombudsman made a bid to secure voluntary co-operation with the security firm in April this year, but after these attempts failed, it issued Auslink Protective Services with Notice to Produce documents relating to the investigation within 17 days.

The company allegedly did not respond to either the notice or a follow-up letter sent by the regulator in May.

Business operators must comply with notices issued by the Fair Work Ombudsman or make a court application to challenge a notice, under the Fair Work Act.

The ombudsman has not released any details of the sham contracting allegations, but said the company will face a penalty of up to $51,000 for not cooperating with the investigation.

M+K Lawyers partner Andrew Douglas told SmartCompany sham contracting occurs when an employer engages a worker as contractor when they are legally seen to be an employee, paying them in a manner below their statutory entitlements.

“It is known to be common within the security and cleaning industries,” says Douglas.

Douglas says it is easy for an employer to misunderstand the definition of an ‘employee’, as it has different definitions under each piece of law, such as laws relating to payroll tax, the superannuation guarantee, workers compensation and safety.

But Douglas says it is fairly easy to prove if a worker should have been deemed an ‘employee’ and managers can be found to be personally liable if it is proven they were aware of that classification.

“People don’t think they have to consider what a person would be entitled to as an employee, but an employer creates a potential offence by choosing to pay less than that entitlement.”

Douglas says small business owners must know that if they do not support a Fair Work Ombudsman inquiry, the watchdog has the power to compel them to.

He also says there is less chance of prosecution if it is found an employer made a mistake not knowingly and then immediately made changes to rectify the situation.

“But if you resist and fight it, it is more likely that will factor into a penalty.” 

SmartCompany contacted Auslink Protective Services but did not receive a response prior to publication.

A directions hearing is listed for the matter in the Federal Circuit Court in Brisbane on November 10.