Seneczko Wins Default as Discovery Sanction in Duty of Loyalty Claim

Seneczko Wins Default as Discovery Sanction in Duty of Loyalty Claim

By Alan E. Seneczko of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Non-Compete on Tuesday, October 15, 2019.

Wessels Sherman Attorney Alan Seneczko, managing shareholder of the Wisconsin office, recently won a huge decision in a claim against a former executive for breach of his duty of loyalty to the company (among other claims). The company, Storage Battery Systems, suspected its director of sales was using his position and the confidential information he acquired during his employment to funnel the company’s business opportunities to his own company, in competition with and in violation of his duty of loyalty to the company and his non-compete agreement. See, Storage Battery Systems, LLC v. Glenn Wilder and Professional Power Engineering, LLC, Case No. 17cv1244 (Wis. Cir. Ct., 01/17/19).

During the discovery process Seneczko requested electronic data, including data reflecting the defendants’ sales both during and after the termination of the employment relationship. In response, the defendants produced certain documents, but refused to produce any electronic data, which the court then compelled them to do. However, despite being ordered by the court to produce the data, the defendants produced a hard drive that had been wiped clean of data during the critical time period – allegedly the result of an attempt to remedy an unknown virus encountered while attempting to duplicate the hard drive. SBS also demonstrated, based on evidence it was able to recover, that the defendant had manipulated electronic data in order to conceal, delete and/or diminish evidence of revenue, sales and other transactions.

Seneczko moved the court to enter a default judgment in its favor as a sanction for the defendants’ willful discovery violations and disregard of the court’s orders – the most extreme sanction possible. After considering the parties’ arguments and conducting evidentiary hearings on the issue, the court granted the motion and entered judgment in favor of the plaintiff on all counts, finding that the defendants had egregiously, intentionally and flagrantly violated its orders by destroying and modifying electronic information in a conscious attempt to affect the outcome of the litigation. It ordered the defendants to reimburse the plaintiff $89,000 in costs and attorney fees, post a $400,000 surety bond to cover a potential recovery by SBS, and proceed to an evidentiary hearing on the amount of damages SBS had suffered as a result of the wrongful conduct.

Besides being a very nice victory for SBS, the court’s decision is important in two respects. First, it demonstrates that an executive’s duty of loyalty to the company he/she serves is very real, with serious consequences for any breach of that duty. Second, a party’s discovery obligations are also very real, with serious consequences for attempts to delete, obstruct or manipulate evidence that has been requested during the litigation process.

If you have questions about an employee’s duty of loyalty to your company, enforcement of a non-compete or no-solicitation agreement, feel free to contact Attorney Alan E. Seneczko at (262) 560-9696, or

Tags: Destruction of Evidence, Discovery Sanctions, Duty of Loyalty, Enforcement of Non-Compete Agreement

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Independent Contractor

Psychological Counselors In Pennsylvania Found To Be Independent Contractors

Psychological Counselors In Pennsylvania Found To Be Independent Contractors

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Wednesday, October 9, 2019.

In July 2019, a state appeals court, the Pennsylvania Commonwealth Court (hereinafter “Court”), decided that psychological counselors (who provided services to clients) had been properly classified as independent contractors. [The case is Pathways Counseling Services LLC v. Commonwealth of Pennsylvania et al., Case Number 1332 CD 2018.]

Pathways Counseling Services LLC (hereinafter “Company”) referred clients to the independent contractor psychological counselors. The Company vigorously defended itself from the charge that it was the employer of the independent contractor psychological counselors for state unemployment insurance purposes.

Pennsylvania Unemployment Compensation Law uses a two-prong legal test to determine whether an independent contractor is properly classified as an independent contractor. The two-part test is:

  • The individual (i.e., psychological counselor) has been and will continue to be free from control or direction over the performance of the services involved, both under the contract of service and in fact, and
  • As to such services, the individual (i.e., psychological counselor) is customarily engaged in an independently established trade, occupation, profession or business.

Both parts of the two-part test must be passed to have an independent contractor relationship.

NO DIRECTION AND CONTROL: The Court found that the Company did not direct and control the psychological counselors because the psychological counselors set their own work schedules, had the right to reject or accept clients, and obtained and paid for their own professional licenses and liability insurance.

The Court further noted that the Company provided no training, meetings, or tools to the psychological counselors, thus indicating an independent contractor relationship. The psychological counselors were not subject to supervision by the Company, also bolstering independent contractor status.

INDEPENDENTLY ESTABLISHED: As to the second prong of Pennsylvania’s two-part test, the Court found that the psychological counselors were independently established professionals who “held themselves out to the public” as providing their professional services as psychological counselors. Therefore, the independent contractors passed both parts of the Pennsylvania two-part independent contractor test (and the Company won its argument that they were not the employer).

PENNSYLVANIA’S TWO-PART TEST IS EASIER THAN ILLINOIS’ THREE-PART TEST: Readers who are familiar with the brutal three-part legal test for independent contractor status under the Illinois Unemployment Insurance Act will know that Illinois uses an additional and very burdensome prong [Part B of the Section 212(A), (B), (C) test] where the Company must prove a different course or different place of business (meaning that the Company and the independent contractor must be in a different type of business or a different place of business). Pennsylvania companies who use independent contractors are fortunate they don’t have Illinois’ dreaded “course of business/place of business test.”

Interestingly, the insurer for the Company in the Pennsylvania unemployment insurance case required that the independent contractor psychological counselors provide their services right at the offices of the Company, but the Court noted that this requirement as to place of business was imposed by the insurer and not by the Company. Therefore the Court found this requirement was not direction and control by the Company over the independent contractor psychological counselors. Had this case been in Illinois, there may well have been an insurmountable legal issue with Illinois’ place of business/course of business prong.

Strategy Tip on Establishing a Different Place of Business: Charging a fixed rental for use of office facilities is a solid way to dramatically strengthen independent contractor status. Employees do not pay rent to their employers to work in an office owned by the employer. I have handled several legal challenges where my client charged rent to the independent contractors, and it was extremely persuasive to the auditor or Hearing Officer in reaching a finding that the independent contractors enjoyed their own place of business (by paying rent).

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act, Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

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Firm News

Wessels Sherman Offers a New Service to its Clients – Early Mediation of Internal Workplace Disputes!

Wessels Sherman Offers a New Service to its Clients – Early Mediation of Internal Workplace Disputes!

By James B. Sherman of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Firm News on Thursday, October 10, 2019.

Our clients and friends are familiar with many of our firm’s client services, including our skilled litigation team they rely on to handle every sort of workplace litigation when things go bad. Many people also know about our one-of-a-kind phone consultation program, started in the 1980s to help employers avoid workplace issues from winding up in court. Our firm was on the forefront in keeping businesses out of legal trouble by allowing owners and HR professionals early access to advice from our experienced attorneys, without worries about incurring legal fees. We’re at it again – offering our clients yet another completely different service to deal with some of their toughest employment problems, potentially solving them before they mushroom into more serious problems.

James Sherman, our firm’s President/CEO, has undergone rigorous training in cutting-edge “transformative mediation.” In addition to becoming a qualified mediator under MN Rule 114, Mr. Sherman relies on his years of experience representing management in labor and employment disputes across the country. What makes this particular service – Early Transformative Mediation – so valuable to employers, is that it can take place before parties “lawyer up” to pursue formal grievances, charges, or litigate their dispute in court.

Here are just a few examples of situations where early transformative mediation might avoid an internal disputes hurting morale, productivity, or an employer’s image:

  • An informal grievance is raised between co-workers and while management believes it has dealt with the situation, for whatever reason one or more of the individuals involved won’t drop it and move on.
  • An otherwise good employee resists his or her supervisor’s or manager’s instructions to the point where the only recourse seems to be to discharge the employee for insubordination.
  • Two or more individuals constantly argue with one another, seemingly over virtually anything; you suspect that there may be a bias involved but there is nothing tangible to confirm your suspicion.

Transformative mediation, done confidentially and in a manner designed to allow each party to gain a greater understanding of the other’s point of view, without judgement, can give parties to a dispute, an opportunity to resolve their issues themselves (versus being pushed toward the customary compromise associated with most mediation). When individuals resolve their dispute themselves, the solution can be long-lasting and result in greater job satisfaction.

These are not the sort of marathon sessions many come to associate with mediation. A typical early transformative mediation session will last 1-2 hours. Compared to the high cost of turnover, lost productivity for disgruntled workers and/or supervisors and managers alike (or worse, litigation), early transformative mediation can be a bargain. To learn more about how doing early transformative mediation can work for your business, contact Jim Sherman directly, at (952) 746-1700 or by email at or email his legal assistant at for a brochure, complete with fees and other important details.

Related Posts: On the Lighter Side, Wessels Sherman’s 2017 Employer Empowerment Seminar in Minnesota is Another Big Success! , SAVE THE DATE: Friday, April 28th, 2017!!!, Wessels Sherman is Pleased to Announce that Allison Wells has Joined our Firm as an Associate Attorney in our Minneapolis, MN Office.

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Discrimination Harassment

Seventh Circuit Decision-Use Of The “N-Word”

Seventh Circuit Decision-Use Of The “N-Word”

By Walter J. Liszka of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Discrimination on Monday, October 7, 2019.

In recent years, a number of Federal Appellate Courts have issued opinions finding that the single use of a racial slur would be sufficient to constitute a hostile and offensive working environment based on race. On August 21, 2019, the Seventh Circuit Court of Appeals reached the opposite conclusion in concluding that the single alleged use of the “N Word” by a Supervisor was not enough to show racial harassment given the overall work scenario of the Plaintiff.

In the case of Smith v. Illinois Department of Transportation, (No. 18-2948; August 21, 2019)the Plaintiff, Terry L. Smith, was disciplined and eventually terminated for poor work performance that included numerous safety violations during his six (6) month probationary period. While he was employed, Mr. Smith, made numerous internal complaints about harsh and unfair treatment by his Supervisors, some of them raising allegations of racial discrimination, including a claim that one of his Supervisors (Lloyd Colbert, African American) had a very angry conversation with Smith that included his (Colbert) calling Smith a “stupid A — N—–” a few weeks before he was terminated.

The Seventh Circuit affirmed the Summary Judgment issued by District Court Judge Edmond E. Chang in favor of the Illinois Department of Transportation and noted that a large majority of the Plaintiff’s complaints about harassment involved Supervisors conduct that did not relate to race. In fact, the Seventh Circuit concluded that the alleged use of the “N-Word” near the end of his employment did not affect his overall work experience at work nor change the fact that his discharge was related to “poor performance”. In fact, termination proceedings against Smith had been initiated two (2) weeks prior to Colbert’s comment and no evidence was presented to substantiate that the racial slur changed Smith’s work experience in the Department. It also should go as noted that the Supervisor who made the alleged “N-Word” comment was also an African American which may have influenced the Court’s view of the impact of this comment on Smith.

The clear path of other Circuits in finding that the single use of racial slur would constitute racial harassment at least now seems to run contrary to the Seventh Circuit opinion. The Seventh Circuit opinion may give employers some support in the argument that racial harassment requires more proof of severe and pervasive conduct that directly affects the terms and conditions of the Plaintiff’s employment rather than a single event standing alone, but there are certainly a number of Appellate Courts in Federal System that believe that a “single use of a racial slur” is sufficient to support a finding of racial discrimination.

Questions? Contact attorney Walter Liszka in our Chicago office at (312) 629-9300 or by email at

Tags: Racial Slurs, Smith v Illinois Department of Transportation, discrimination, harassment

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Union Matters

Life Raft For Multiemployer Pension Plans

Life Raft For Multiemployer Pension Plans

By Walter J. Liszka of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Union Matters on Tuesday, October 1, 2019.

On July 24, 2019, the United States House of Representatives passed a measure designed to rescue troubled Multiemployer Pension Plans. The Rehabilitation For Multiemployer Pension Act (House Bill No. 397) would provide loans and grants to insolvent and near-insolvent Multiemployer Pension Plans. The measure would create a new Treasury Department Agency-The Pension Rehabilitation Administration, to administer the loans and grants. It is estimated that there are over 130 Multiemployer Pension Plans that will run out of money within the next twenty (20) years. In addition, the Pension Benefit Guaranty Corporation (PBGC) the current government agency that insures Multiemployer Pension Funds is expected to run out of money by 2025 without congressional action.

The Congressional Budget Office estimates that the cost of this new Rehabilitation Measure if passed by the Senate and signed into law, would cost in the range of $48.5 Billion Dollars over the next ten (10) years. Obviously, either taxes would have to increase substantially or, in the alternative, the trillion dollar debt level of the United States would certainly be added to!

What the Rehabilitation Measure does not recognize is the fact that the Multiemployer Pension Crisis is not a creature of unknown causes. It is related, in large part, to the catastrophic mismanagement of those Multiemployer Pension Plans over the last few decades and, as well, an increase in the number of individuals who are drawing Pensions.

For a historical perspective, when Social Security was created and in its initial years, in the United States and a retirement age to draw Social Security benefits was pegged at 65, one (1) in ten (10) individuals who could draw on the Social Security Fund lived to the age of 65. Obviously, if you limit the group that can draw benefits, it is difficult to exhaust those benefits. Through medical science and better diet (?), people are living longer and, therefore not only drawing from Social Security but from their Multiemployer Pension Funds and creating a situation were “more money is going out then coming in”, whether from Social Security or Multiemployer Pension Funds.

The decrease in the number of people belonging to unions, currently less than seven (7%) percent of the private business work force are union members, and therefore having contributions made on their behalf has also added to a decrease in the financial resources. While there may be a “Multiemployer Pension problem”, there has to be substantial doubt that a massive bailout like the Rehabilitation Act will solve this problem going forward.

Questions? Contact attorney Walter Liszka in our Chicago office at (312) 629-9300 or by email at

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