A Former Employee's Lawyer Sent a Demand Letter. Employer Next Steps

What the letter is for

A demand letter from a former employee's lawyer serves three purposes: to tell the company a claim exists, to open a negotiation before the cost of filing, and to create a record that the company was on notice of the claim and of its duty to preserve evidence. It is usually written to sound stronger than the case is, and it is usually sent because the lawyer would rather settle than file. None of that means it can be ignored. A letter that is handled badly, by a hostile phone call, a deleted mailbox or a careless response, turns a negotiable dispute into a lawsuit with better facts for the other side.

The rules for demand letters in general, including whether to respond at all, are covered in whether to respond to a demand letter. This article covers what is different when the sender is a former employee.

Read it for the theory, not the tone

Employee demand letters tend to list many grievances and few legal claims. The company's first task is to find the claims, because each has its own elements, deadlines and value. The usual candidates:

• Discrimination or retaliation under Texas Labor Code chapter 21 or the federal statutes. These cannot go to court without an agency charge, and the time to file one is short.
• Unpaid wages, commissions or bonuses. A Texas Payday Law claim with the Texas Workforce Commission, a breach of contract claim, or a federal wage and hour claim for overtime.
• Breach of an employment, commission or severance agreement, including claims that the company failed to pay severance or accelerated equity.
• Wrongful termination in one of its recognized Texas forms, discussed in defending a wrongful termination claim.
• Defamation based on what the company said about the departure, inside or outside the business.
• A preservation demand and a request for the personnel file, which often accompany the substantive claims.

A letter that names no statute and no claim, and simply asserts that the termination was unfair, may describe no viable claim at all under Texas at-will law. A letter that cites chapter 21 and mentions a protected characteristic describes a claim with a filing clock already running.

The deadlines that are real

The letter will give the company a date, often ten or fourteen days, to pay or respond. That date has no legal force; nothing happens by law if it passes. The deadlines that matter run against the former employee, and they shape the company's position:

• A discrimination or retaliation charge must be filed with the Texas Workforce Commission Civil Rights Division within 180 days of the alleged act, or with the EEOC within 300 days.
• A wage claim under the Texas Payday Law must be filed with the Texas Workforce Commission within 180 days after the wages became due, under Labor Code section 61.051. The same unpaid wages can also be pursued as a breach of contract claim in court under the ordinary four-year limitations period.
• Contract and most tort claims carry their own limitations periods, generally two or four years from the breach or injury.

Knowing where the former employee stands against each clock tells the company whether a claim is live, about to expire or already gone. The letter's own deadline is addressed in whether the deadline in a demand letter is real.

What to do in the first week

1. Preserve. The letter itself usually demands it, and the law requires it once litigation is reasonably anticipated. Issue a written hold covering the personnel file, the decision-maker's email and messages, time and pay records, the handbook in effect, the files of similarly situated employees, and any investigation notes. Suspend auto-deletion on the relevant accounts. Losing records after notice carries its own consequences in a later lawsuit.
2. Notify the insurer. Employment practices liability policies, and some general liability and directors and officers policies, cover these claims. They require notice of a claim within a stated period, and a demand letter is a claim under most of them. Late notice can forfeit coverage. Many policies also give the insurer a say in choosing defense counsel.
3. Contain communication. Instruct managers and HR not to contact the former employee, not to discuss the letter with staff, and not to post or comment about the departure. Route any reference inquiries to a single person with a neutral script.
4. Assemble the record. The documents a litigator needs first: the signed agreements, the handbook acknowledgment, the termination documentation and the reason given, the pay history, and the discipline history of comparable employees.
5. Check for retaliation exposure. If the former employee's spouse, friend or ally still works at the company, nothing about their treatment may change because of the letter.

Deciding how to respond

There are three realistic responses, and the choice is a judgment about the claims' value and the company's record.

A substantive written response from the company's litigator, denying liability, correcting factual errors, stating the legitimate reason for the termination briefly, and inviting the other side to provide any support for the claims. This is the usual choice when the company's record is good. It is written knowing it will be an exhibit.

An acknowledgment and request, confirming receipt, confirming that records are preserved, and asking for the documents or specifics the letter did not provide. This buys time without conceding anything and is useful when the letter is vague.

An early negotiation, when the record shows a real exposure, for example an unpaid commission the contract clearly owes or a termination with a timing problem. Resolving early, in exchange for a release, is often less costly than a position statement, an agency investigation and a lawsuit. What a release has to contain to hold up is covered in severance agreements and releases that hold up.

Silence is a fourth option, and sometimes the right one for a letter with no viable claim, but it should be a decision made with counsel rather than a default.

Example

Suppose a Dallas marketing agency terminates an account director for missing revenue targets. Six weeks later a letter arrives from her lawyer demanding a year's salary, alleging that she was fired for complaining about a male colleague's higher pay, that commissions on two closed accounts were never paid, and that the agency's CEO told a client she had been “let go for performance problems.” The letter gives ten days.

The agency's litigator sorts the claims. The pay-complaint retaliation theory requires a charge within 180 days under Texas law; her lawyer has about four months left, so the claim is live and the timing of her complaint relative to the termination decision is the key fact. The commission claim turns on the plan's wording, which pays on collection, and one of the two accounts has in fact paid, so a commission is owed; the agency pays it with the response. The defamation claim is weak because the statement to the client was true and the CEO had a business reason to make it. The agency notifies its insurer, preserves the records, and sends a response that denies the retaliation claim with the decision timeline, encloses the commission payment with an explanation of the second account, and invites any further information. The matter ends with a modest settlement and a release before any charge is filed.

What the former employee's lawyer is thinking

Understanding the other side's position helps the company respond proportionately. The lawyer has usually taken the case on contingency or a limited retainer, has heard only the employee's account, and has written the letter to test the company's reaction. A calm, factual response with documents behind it changes that lawyer's valuation of the case. An angry response, or a response that reveals an inconsistent reason for the termination, raises it. The company's goal in the first exchange is to be the party with the better record and the steadier hand.

Tina Wysk represents employers responding to demand letters, agency charges and lawsuits from former employees in the Dallas area; see demand letters and pre-suit negotiation.