📋 Overview

You've received a demand letter from an employee (or former employee) claiming unpaid wages. California has some of the strictest wage and hour laws in the country, with significant penalties for non-compliance. This guide will help you evaluate the claim, understand your defenses, and respond strategically.

⚠ Don't Ignore It

Ignoring a wage claim can result in waiting time penalties of up to 30 days' wages, plus attorney fees if it goes to litigation.

🕐 Time Matters

The employee may file with the Labor Commissioner (DLSE) or sue in court. A prompt, professional response often resolves matters pre-litigation.

💰 Potential Exposure

Unpaid wages + waiting time penalties + interest + liquidated damages + attorney fees can multiply the original claim significantly.

Common Wage Claims

  • Unpaid regular wages - Hours worked but not compensated
  • Overtime violations - Work over 8 hrs/day or 40 hrs/week not paid at 1.5x or 2x
  • Final pay timing - Wages not paid immediately on termination or within 72 hours on resignation
  • Meal and rest breaks - Missed or interrupted breaks (1 hour penalty per violation)
  • Expense reimbursement - Business expenses not reimbursed per LC 2802
  • Commission disputes - Earned commissions not paid per agreement
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Case review, professional response letter, up to 2 revisions. Often resolves matters without litigation.

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🔍 Evaluate the Claim

Before responding, conduct a thorough internal investigation. Review these key areas to assess the claim's validity and your potential exposure.

Risk Assessment Matrix

Claim Type If Valid Risk Level
Unpaid overtime Back wages + liquidated damages (2x) + attorney fees HIGH
Final pay delay Up to 30 days waiting time penalties (LC 203) HIGH
Meal/rest breaks 1 hour premium pay per violation per day MEDIUM
Expense reimbursement Actual expenses + interest LOW
PAGA claims $100-$200 per pay period per employee + 75% to LWDA HIGH

📄 Payroll Records

  • ✓ Time records for claimed period
  • ✓ Pay stubs issued to employee
  • ✓ Overtime calculations
  • ✓ Final paycheck documentation

📝 Employment Documents

  • ✓ Offer letter / employment agreement
  • ✓ Exempt vs non-exempt classification
  • ✓ Meal/rest break policies signed
  • ✓ Commission agreement (if applicable)

⚠ Recordkeeping Burden

Under California law, the employer bears the burden of maintaining accurate time records. If you can't produce records, courts may credit the employee's reasonable estimates. Maintain records for at least 4 years.

🛡 Your Defenses

Even valid-sounding claims may have defenses. Here are common defenses to California wage claims.

Exempt Employee Classification

If the employee was properly classified as exempt (executive, administrative, professional), overtime rules don't apply. But exemption requirements are strict in California—ensure salary threshold ($66,560/year in 2024) and duties tests are met.

When to use: Employee claims overtime but held a management/professional role meeting all exemption criteria.

Good Faith Dispute

Waiting time penalties under LC 203 may be reduced or eliminated if you had a good faith belief wages weren't owed. Document your reasoning.

When to use: Legitimate dispute over commission calculation, bonus eligibility, or deduction legitimacy.

Statute of Limitations

Wage claims have a 3-year statute of limitations for oral agreements, 4 years for written agreements. PAGA claims have a 1-year limit from violation.

When to use: Claims reference violations from more than 3-4 years ago.

Authorized Meal Period Waiver

Employees may waive their first meal period if working 6 hours or less. Second meal waiver requires specific conditions. Must be voluntary.

When to use: Employee signed valid meal period waiver and shift was 6 hours or less.

Independent Contractor Status

If properly classified as an independent contractor under ABC Test (AB5), wage laws don't apply. But misclassification is heavily scrutinized.

When to use: True contractor relationship meeting all ABC Test prongs (rare).

🚨 Weak Defenses to Avoid

  • "Employee agreed to work off the clock" — Never valid
  • "We're a small business" — No exemption for company size
  • "They didn't complain at the time" — Doesn't waive rights
  • "Industry practice" — Must still comply with CA law

⚖ Response Options

Based on your evaluation, choose the appropriate response strategy.

Negotiate Settlement

If the claim has merit, settling early often costs less than waiting time penalties and litigation. Offer to resolve the core amount in exchange for a full release.

  • Saves attorney fees (both sides)
  • Avoids public record
  • Stops penalty clock

Dispute & Defend

If you have strong defenses, send a formal response disputing the claim with supporting documentation. Be prepared for DLSE complaint or lawsuit.

  • Preserves all defenses
  • May deter weak claims
  • Higher risk if wrong

Partial Payment

Pay undisputed amounts immediately while disputing the rest. Stops waiting time penalties on amounts paid.

  • Reduces penalty exposure
  • Shows good faith
  • Partial admission risk

Request Documentation

Ask the employee for supporting documentation before responding substantively. Many claims lack specifics.

  • Buys time to investigate
  • Tests claim strength
  • Identifies real amount

📊 Cost-Benefit Analysis: Settlement vs. Litigation

Example: $5,000 overtime claim

Claimed overtime wages $5,000
Liquidated damages (if willful, 2x) $5,000
Waiting time penalties (30 days × $200/day) $6,000
Interest (10%) $500
Employee attorney fees (if they win) $15,000+
Your attorney fees $10,000+
MAX EXPOSURE IF YOU LOSE $41,500+

💡 Settlement Sweet Spot

For claims under $25,000, settling for 50-75% of the base amount (before penalties) is often economically rational. You avoid attorney fees, penalties, and management time. Get a comprehensive release in exchange.

📝 Sample Responses

Copy and customize these response templates for your situation.

Acknowledgment & Investigation
We acknowledge receipt of your demand letter dated [DATE] regarding claimed unpaid wages. We take all wage claims seriously and are conducting a thorough review of our payroll records and your employment file. Please provide the following documentation to assist our review: (1) your calculation of hours worked and wages claimed, (2) any time records or notes you maintained, and (3) copies of any pay stubs you believe are incorrect. We will respond substantively within [14/21] days of receiving this information or by [DATE], whichever is earlier.
Dispute Response - Exempt Employee
We have reviewed your demand for overtime wages and respectfully dispute the claim. During your employment as [JOB TITLE], you were properly classified as an exempt employee under California Labor Code Section 515 and the applicable IWC Wage Order. Your position met all requirements for the [executive/administrative/professional] exemption: you earned a salary of [$X] per year (exceeding the minimum threshold), and your primary duties included [describe exempt duties]. These duties constituted more than 50% of your work time. As an exempt employee, you were not entitled to overtime pay. We therefore deny your claim in its entirety.
Settlement Offer
Without admitting liability, and in the interest of resolving this matter efficiently, we are prepared to offer [$AMOUNT] as full and final settlement of all claims arising from your employment, including but not limited to the wage claims raised in your demand letter. This offer is contingent upon your execution of a mutual release agreement. The release will cover all claims through the date of signing, including any claims under the California Labor Code, FLSA, or any other federal, state, or local law. This offer will remain open for [14] days. If we do not receive your acceptance by [DATE], the offer will be withdrawn and we will defend any claims through appropriate legal channels.
Good Faith Dispute - Final Pay
We acknowledge your claim for waiting time penalties under Labor Code 203. However, we had a good faith belief that all wages owed were paid at termination. The dispute regarding [describe disputed item - e.g., commission calculation, bonus proration] was reasonable and based on [explain basis - contract language, past practice, etc.]. Under Barnhill v. Robert Saunders & Co. and subsequent cases, waiting time penalties are not automatic and require willful failure to pay. We are prepared to pay [$X] representing the disputed [wages/commissions] upon receipt of your signed acknowledgment that this resolves the underlying wage dispute. We do not believe waiting time penalties are warranted given our good faith position.

🚀 Next Steps

What to do after receiving a wage claim demand letter.

Step 1: Preserve Records

Immediately preserve all payroll, time, and personnel records. Issue a litigation hold if you have a document retention policy.

Step 2: Investigate

Review records and interview managers. Determine if the claim has merit before responding.

Step 3: Calculate Exposure

Add up potential wages, penalties, interest, and attorney fees. Compare to settlement cost.

Step 4: Respond

Send your response within a reasonable time. Silence can be used against you.

If They File with the Labor Commissioner (DLSE)

  • Settlement Conference - DLSE will schedule a conference to attempt resolution
  • Berman Hearing - If no settlement, an evidentiary hearing before a deputy commissioner
  • Appeal - Either party can appeal to Superior Court for a trial de novo

If They File a Lawsuit

  • Respond within 30 days - File an answer or face default judgment
  • Consider early mediation - Many courts require it anyway
  • Watch for class/PAGA claims - These can affect other employees

Get Professional Help

California wage claims can escalate quickly. Get a professional response letter drafted on attorney letterhead.

Schedule Consultation - $450

California Resources

  • DLSE Website: dir.ca.gov/dlse - Official Labor Commissioner site
  • IWC Wage Orders: dir.ca.gov/iwc - Industry-specific requirements
  • Cal. Labor Code: leginfo.legislature.ca.gov - Full text of laws