How to Respond to Unpaid Wage Demand Letters
Employer defense strategies for wage and hour claims, overtime disputes, and misclassification allegations
✍️ Need to Send an Unpaid Wages Demand Letter? If you're owed wages by your employer, see my guides on U.S. Unpaid Wages Demands | California Wage Claims

When an employee or their attorney sends a demand letter alleging unpaid wages, overtime, or misclassification, employers face significant financial and legal exposure. California wage and hour claims carry strict liability, waiting time penalties, and mandatory attorney fees for prevailing employees, making even small claims expensive to defend.

This guide explains how to evaluate wage demand letters, identify defenses, calculate exposure, and draft strategic responses that minimize liability while preserving settlement opportunities. Whether you're facing claims for unpaid overtime, meal/rest break violations, or independent contractor misclassification, understanding your response options is critical.

Initial assessment: What to do when you receive a wage demand letter
Immediate steps (first 48 hours)
  • Do not respond immediately: Resist urge to reply defensively. Premature admissions can be used against you.
  • Preserve all records: Pull employee's personnel file, timecards, pay stubs, employment agreement, classification records. Send litigation hold notice to prevent deletion.
  • Notify insurance: Check if EPLI (employment practices liability insurance) covers wage claims. Report claim within policy timeframe.
  • Consult employment attorney: Wage law is complex. Attorney review within 5-7 days is critical to avoid waiving defenses or making admissions.
    • Key questions to answer
    📋
    Is the claim valid?
    Review timecards, pay records, job duties. Was employee properly classified? Were overtime hours actually worked? Were meal breaks provided/waived?
    ⏱️
    What's the exposure?
    Calculate unpaid wages, overtime, meal/rest penalties, waiting time penalties (up to 30 days' wages). Add attorney fees (can equal or exceed damages).
    🛡️
    What are my defenses?
    Exempt status, accurate records showing payment, employee's duty to record hours, statute of limitations, lack of employer knowledge.
    💼
    Is this part of larger issue?
    If one employee has valid claim, others in same position likely do too. Assess class action risk before responding.
    California waiting time penalties: If wages are owed and not paid timely upon termination, employer owes up to 30 days of additional wages as penalty (Labor Code § 203). This penalty accrues from termination date, so delays in responding increase exposure.
    Common employer defenses to wage claims
    Exempt employee classification

    If employee was properly classified as exempt (executive, administrative, professional, outside sales, or computer professional), no overtime is owed. California exemptions require:

    • Salary basis: Fixed salary, not hourly (minimum $66,560/year in 2024 for most exemptions)
    • Duties test: Job duties must primarily involve exempt work (managing others, exercising discretion, professional/creative work)
    • Independent judgment: Employee must have authority to make independent decisions of significance
    Common mistake: Job title alone doesn't create exemption. "Manager" who spends 90% of time doing non-exempt work (cashier, sales, manual labor) is non-exempt regardless of title. Burden is on employer to prove exemption.
    Independent contractor classification

    If worker was properly classified as independent contractor, wage laws don't apply. California AB5 (2020) imposes ABC test:

    Prong Requirement (employer must prove ALL three)
    A - Control Worker is free from employer's control and direction in performance of work
    B - Usual business Worker performs work outside the usual course of employer's business
    C - Independently established Worker is customarily engaged in independently established trade, occupation, or business
    AB5 exemptions: Certain occupations (doctors, lawyers, architects, real estate agents, etc.) are exempt from ABC test and use older Borello test. Check if worker's occupation qualifies for exemption.
    Other defenses
    📅
    Statute of limitations
    Wage claims: 3 years (4 years for written contracts). Unpaid wage claims older than 3 years are time-barred.
    📝
    Accurate records
    If timecards show all hours worked and overtime paid, employee has burden to prove records are inaccurate.
    ⏰
    Employee duty to record hours
    If employer provided time tracking system and employee failed to report hours, employer may not be liable for unrecorded time (limited defense).
    🍽️
    Meal break waivers
    Employees working ≤6 hours can waive meal break in writing. Second meal break (for 10+ hour shifts) can be waived if first meal taken.
    Calculating worst-case exposure
    California wage claim damages

    Potential liability includes multiple components:

    1
    Unpaid wages (straight time)
    Base unpaid wages for hours worked but not compensated. Example: 20 hours × $25/hour = $500.
    2
    Unpaid overtime
    Hours over 8/day or 40/week at 1.5× regular rate. Hours over 12/day or 7th consecutive day at 2× rate. Example: 10 hours unpaid OT × $25 × 1.5 = $375.
    3
    Meal and rest break penalties
    1 hour of pay per day for each meal/rest break violation (Labor Code § 226.7). Example: 50 workdays × 2 violations/day × $25/hour = $2,500.
    4
    Waiting time penalties
    If wages not paid at termination, up to 30 days × daily wage (Labor Code § 203). Example: $200/day × 30 = $6,000.
    5
    Wage statement penalties
    $50/pay period (first violation), $100/pay period (subsequent), up to $4,000 total for inaccurate wage statements (Labor Code § 226).
    6
    Attorney fees and costs
    If employee prevails, employer must pay employee's attorney fees. Often equals or exceeds underlying damages. Example: $10,000 damages + $15,000 attorney fees = $25,000 total.
    Class action multiplier: If multiple employees have same classification issue (e.g., all assistant managers misclassified), exposure = per-employee damages × number of affected employees × 3 years. Can quickly reach 6-7 figures.
    Sample exposure calculation
    Example scenario:
    Employee: Restaurant shift supervisor, salary $50,000/year, worked 50 hours/week for 2 years, then terminated. Claims misclassification and unpaid overtime.

    Worst-case exposure:
    - Unpaid OT: 10 hours/week × 104 weeks × $24/hour × 1.5 = $37,440
    - Meal/rest penalties: 520 shifts × 2 violations × $24 = $24,960
    - Waiting time penalty: $192/day × 30 = $5,760
    - Wage statement penalties: 104 pay periods × $100 = $10,400 (capped at $4,000)
    - Subtotal: $71,160
    - Attorney fees (est. 1.5× damages): $106,740
    TOTAL EXPOSURE: ~$178,000
    Response strategy and settlement considerations
    When to settle vs. fight
    ✓
    Settle when:
    • Employee has strong evidence (timecards, emails, witnesses) of unpaid work
    • Misclassification is clear (duties don't meet exemption test)
    • Exposure exceeds settlement demand by 3×+
    • Class action risk exists (other employees in same position)
    • Records are incomplete or missing
    ✗
    Fight when:
    • Employee was clearly exempt or IC under applicable test
    • Records conclusively show all hours paid
    • Claim is time-barred (over 3 years old)
    • Employee's evidence is speculative or fabricated
    • Settlement demand is unreasonable relative to actual exposure
    Response letter structure

    If denying claim in whole or part:

  • Acknowledge receipt of demand letter (don't ignore it)
  • State employer's position: dispute classification, dispute hours claimed, or dispute damages calculation
  • Cite specific defenses: exemption analysis, time records, statute of limitations
  • Attach supporting evidence: timecards, job description, pay stubs
  • Offer settlement (if appropriate) at significantly reduced amount with full release
  • State consequences of litigation: employee's weak case, employer will seek fee recovery if frivolous
    • Partial settlement strategy: If some wages are owed but employee's calculation is inflated, offer to pay undisputed amount in exchange for full release. Example: Employee claims $50,000. Employer audit shows $8,000 legitimately owed. Offer $12,000 settlement to avoid litigation costs.
    What NOT to do in response
    • Don't admit liability: Even if claim has merit, admissions in response letter can be used against you in litigation. Let attorney draft response.
    • Don't retaliate: If employee is still employed, do not fire, demote, or reduce hours in response to wage claim. This creates separate retaliation claim.
    • Don't ignore statutory deadlines: California Labor Commissioner claims have specific response timelines. Missing deadline = default judgment.
    • Don't threaten frivolously: Baseless counterclaims (defamation, breach of contract) can trigger anti-SLAPP motion and fee sanctions.
    Attorney services for responding to wage demand letters

    I represent employers responding to wage and hour demand letters, overtime claims, and misclassification allegations. My practice focuses on evaluating exposure, identifying defenses, and negotiating cost-effective settlements while preserving litigation options.

    How I help employers
    📊
    Exposure analysis
    I review employee records, calculate worst-case damages, and assess class action risk to help you make informed settlement decisions.
    🛡️
    Defense identification
    I analyze exemption status, IC classification, time records, and statute of limitations to identify viable defenses and litigation strategy.
    📝
    Response letter drafting
    I draft strategic response letters that preserve defenses, avoid admissions, and position settlement negotiations favorably.
    🤝
    Settlement negotiation
    I negotiate with plaintiff attorneys to resolve claims cost-effectively, including structured settlements and release language to prevent future claims.
    Received a wage demand letter?
    Schedule a consultation to discuss your wage claim defense. I'll review the demand, assess your exposure, identify defenses, and explain settlement vs. litigation options.
    Email: owner@terms.law