The company was taken to the Federal Circuit Court for allegedly employing five workers as independent contractors, when they should have been treated as employees.

That practice, known as sham contracting, is typically designed to avoid giving workers proper entitlements.

The Fair Work Building Industry Inspectorate accused Bavco of employing the five workers on sham contracts at various dates between 2009 and 2011.

But the company's directors argued they simply did not know the contracts they had employed the five workers on were contracts of employment, rather than contracts for services.

They also argued they were not reckless about whether the workers were on contracts of employment rather than contracts for services.

The company was audited in 2009 by the Australian Building and Construction Commission for sham contracting.

It found no breaches but identified a number of issues relating to unskilled workers on the refurbishment of the Edmund Barton Building, occupied by the Australian Federal Police.

But the ABCC returned in 2011 for another audit, and Bavco was taken to the Federal Circuit Court for alleged sham contracting.

The court handed down its judgment late last week, clearing the company's directors.

Judge Nicholas Manousaridis found that the directors neither knew, nor were reckless in not knowing, that the five workers were actually on contracts of employment.

"I have concluded that the respondents have proved on a balance of probabilities that Bavco did not know that the contracts between Bavco and the five workers were in fact contracts of employment rather than contracts for services.

"The respondents have also proved on a balance of probabilities that Bavco was not reckless in not knowing whether such contracts were contracts of employment."

Judge Manousaridis dismissed the Director of the Fair Work Building Industry Inspectorate's application.