A Former Employee Is Threatening to Sue: First Steps for California Employers

Last updated: October 2026

When a former employee's lawyer sends a demand letter to a California business, the first week decides a great deal. Final wages that were not paid on time keep accruing as a penalty for up to 30 days. (Lab. Code, § 203, subd. (a).) A request for the personnel file must be answered within 30 calendar days. (Lab. Code, § 1198.5.) Documents and email have to be preserved. The insurance carrier has to be notified. And the response letter will be an exhibit. Kolmogorov Law, P.C. defends employers in Orange County, Los Angeles, and across California in disputes with former employees, including the data, commission, and competition claims that often travel with them.

Call (909) 235-6116 or contact us online if a former employee has made a claim against your company.

What these claims look like

Two employees resign together and a lawyer's letter follows, alleging unpaid wages, missed breaks, and retaliation. A terminated sales manager demands commissions on deals that closed after he left. A departed executive claims wrongful termination and, in the same letter, threatens to report the company to a regulator. A former office manager accuses the owner of harassment and asks for a six-figure settlement by Friday.

Some of these claims are real. Some are pressure. The response is the same at the start: fix what can be fixed immediately, preserve everything, and do not argue the case in an email.

Final pay: the clock that is already running

California requires final wages to be paid promptly at termination or resignation. An employer that willfully fails to pay them on time owes the employee's daily wages as a penalty from the due date until paid, for up to 30 days. (Lab. Code, § 203, subd. (a).) That penalty is the first thing I check when a demand arrives, because it is the easiest claim for the employee to prove and the easiest for the employer to stop. If anything is unpaid, pay it now, with a clear accounting. The penalty stops accruing when the wages are paid or an action is filed, whichever comes first. (Lab. Code, § 203, subd. (a).)

Accrued vacation, earned commissions, and reimbursable expenses are the usual items in dispute. The commission plan and the expense policy decide them.

The personnel file request

Demand letters almost always include a request for the employee's personnel records and payroll records. The personnel file must be made available for inspection, and a copy provided on request, no later than 30 calendar days after the employer receives the written request. (Lab. Code, § 1198.5.) The parties may agree in writing to a date no more than 35 days out. An employer that misses the deadline owes a $750 penalty. (Lab. Code, § 1198.5, subd. (k).) Payroll records have a separate, shorter statutory timeline. We calendar both the day the letter arrives, and we review the file before it goes out, because the employee's lawyer is reading it to find the claim.

Preserve, then tender

A litigation hold goes to everyone who supervised or worked with the employee: stop deleting, suspend auto-purge, preserve the employee's email account and devices. Deleting a departed employee's mailbox after a demand letter is the single most damaging thing a small employer can do.

Then tender the claim to the employment practices liability carrier and, depending on the allegations, the general liability carrier. Most policies treat a demand letter as a claim and require prompt notice. Late notice forfeits coverage, and employment claims are expensive to defend without it.

The response letter

The response should be short, factual, and free of adjectives. It should confirm that the final wages have been paid, or explain the accounting. It should state that the file is being produced within the statutory period, correct any clear factual errors, and state that the company disputes the claims without arguing them. It should not accuse the employee of anything, speculate about motive, or offer money before the facts are known. Our page on responding to a demand letter covers the general rules.

Claims the employer may have

Departing employees sometimes leave with things that are not theirs: customer lists, pricing, source code, the company's credentials. A demand from the employee's lawyer does not change that. We evaluate the company's own claims at the same time, because pressure runs both ways and a well-founded data or trade secret claim changes the settlement discussion. See our trade secret page, and, for the employee's perspective, our page on being accused of taking company data.

Two cautions. Do not threaten criminal prosecution to gain advantage in the civil dispute; California's professional rules prohibit lawyers from doing so, and it undermines the employer's position. And do not withhold final wages to force the return of property; the penalty statute does not allow it.

Misclassification, PAGA, and the claims that multiply

A single employee's wage claim can become a representative action under California's Private Attorneys General Act, covering every similarly situated employee, and an independent contractor dispute can become a misclassification claim with its own penalties. Those exposures are assessed in the first week, because they change whether the matter is a $15,000 problem or a $500,000 one. Our guides on independent contractor misclassification and the new PAGA rules explain both.

Where these cases are heard

Employment claims by individuals are filed in the Superior Court, the Central Justice Center in Santa Ana for Orange County employers or the Stanley Mosk Courthouse for Los Angeles, or before the Labor Commissioner for wage claims. Discrimination and retaliation claims begin with an administrative complaint to the state civil rights agency. Arbitration agreements, where valid and signed, move the dispute to arbitration.

What to bring to the first meeting

Bring the demand letter, the employee's personnel file, and the payroll records. Bring the offer letter and any agreements signed at hire or separation, the commission or bonus plan, and the handbook. Add the final pay calculation with proof of payment, and the employee's resignation or termination communications. If the employee had access to company data, bring the access logs and the device inventory.

Frequently asked questions

How quickly must a California employer pay final wages?

Promptly at termination or resignation under the Labor Code's timing rules, and an employer that willfully fails to pay on time owes the employee's daily wage as a penalty for each day of delay, up to 30 days. (Lab. Code, § 203, subd. (a).)

How long do I have to give a former employee their personnel file?

Thirty calendar days from receipt of a written request, extendable to 35 days by written agreement. Failure carries a $750 penalty. (Lab. Code, § 1198.5.)

Should I respond to a former employee's demand letter?

Yes, briefly and factually, after paying any wages that are due and tendering the claim to your insurer. Do not argue the case or make accusations in the response; it will be an exhibit.

Can I withhold a final paycheck until the employee returns company property?

No. Final wages must be paid on time regardless of disputes over property, and withholding them triggers the waiting time penalty. Pursue the property separately.

Does my insurance cover a claim by a former employee?

Employment practices liability insurance typically covers wrongful termination, discrimination, harassment, and retaliation claims, with wage claims often excluded or sublimited. Tender promptly; late notice is a common reason for denial.

Talk to a California employer defense attorney

If a former employee has threatened or filed a claim against your company, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is at 327 Magnet, Irvine, CA 92618, and defends employers in Orange County, Los Angeles, and throughout California. See also our employment litigation page.

This page provides general information about California law and is not legal advice. Outcomes depend on the pay records, the agreements, the facts of the separation, and the forum.