I Just Got Sued for Unpaid Overtime in California. What Do I Do First?

You just received a notice. Maybe it's from the Labor Commissioner. Maybe it's a demand letter from an attorney. Maybe it's an actual lawsuit. Either way, your stomach dropped, and now you're Googling what happens next.

Here's what to do and, more importantly, what not to do.

First: Don't Answer Anything Yet

This sounds counterintuitive. Your instinct is to respond, explain your side, correct the record. Don't.

John Fagerholm, DefendMyBiz's managing partner, learned this early in his career.

In this video, he explains it directly:

"When I first became a lawyer, I would answer everything, and then I figured out that the answer gets taken and shown to the other side. Basically, they have my entire case before I ever go in there."

Whatever you say in an early response becomes discovery material. Your explanation of what happened, your payroll rationale, your records, all of it goes to the other side before you've had a single strategic conversation with an attorney. Get counsel before you respond to anything.

Second: Understand What You're Actually Dealing With

Not every overtime claim follows the same path. The notice you received tells you a lot about where this is headed.

Labor Commissioner notice (DLSE claim): This is a Berman hearing process. Here's the typical flow:

1. You receive the claim notice and are invited to respond

2. A Notice of Claim Conference is scheduled. This is the Labor Commissioner attempting to get both sides to settle before a formal hearing

3. If no settlement, the matter proceeds to a hearing (essentially a trial)

As John explains in his walkthrough of the Labor Commissioner process, the conference isn't a hearing. No evidence is presented. Nothing at that stage takes money from your pocket unless you agree to settle. Knowing that changes how you walk into the room.

Demand letter from a plaintiff's attorney: This is pre-litigation. The attorney is asserting a claim and signaling they're ready to file. The tone is often inflated. Demand letters are designed to shock. The number in the letter is almost never the real exposure number.

Civil lawsuit filed in court: You have a response deadline, typically 30 days from service. Missing it means a default judgment against you. This is the most time-sensitive scenario.

PAGA notice: The employee has notified both you and the California Labor & Workforce Development Agency of alleged violations. This one has specific response windows and different strategic considerations.

See how PAGA defense works.

Third: Pull Your Records Before Anyone Asks For Them

Before the other side starts requesting documents, you want to know what your records actually show. Specifically:

• Timekeeping records for the employee(s) named in the claim

• Payroll records showing how overtime was calculated

• Any bonus, commission, or incentive pay that was part of their compensation

• Meal and rest break logs

• The employee's job description and classification documentation

• Any signed acknowledgments of your overtime or timekeeping policies

This matters for two reasons. One, your attorney needs to assess your real exposure, not the inflated number in the demand. Two, gaps in your records become your problem in litigation. 

California places the burden of accurate timekeeping on the employer. If records are missing or inconsistent, courts can allow the employee to estimate hours worked and shift the burden to you to disprove it.

Fourth: Check Whether the Calculation Is Even Right

Many overtime claims rest on real violations. But a lot also rests on math that hasn't been challenged yet.

One of the most common errors John flags for employers, covered in this short, is the dual calculation mistake:

"Most employers know that overtime is over 8 hours per day, but they seem to forget that it's also over 40 hours per week."

But it works the other way too. 

Employees and their attorneys sometimes calculate overtime incorrectly, stacking penalties, misapplying the regular rate, or claiming double time when single time-and-a-half applies. Before you accept any liability number, have an attorney run the actual math against your payroll records.

A few common inflation points to check:

• Was the claimed regular rate of pay calculated correctly? (Does it include bonuses, commissions, differentials, or was it overstated?)

• Are the hours claimed consistent with your timekeeping records?

• Are waiting time penalties being claimed? If so, was the final paycheck actually late, and was that delay willful?

• Is on-call time being counted as hours worked? (Worth noting: if your employee was on call but not free to do as they pleased, that time is compensable, but the parameters matter.)

Know more about it in this video: Do You Have to Pay for On-Call Time in California?

Fifth: Assess Whether This Is Isolated or Systemic

This is the strategic question that shapes everything else.

If one employee has a legitimate grievance about their own overtime calculation, that's one thing. If the calculation error ran across your entire workforce for two years, that's a class action or PAGA representative action waiting to happen. And the exposure is a different order of magnitude entirely.

Your attorney's first job is to determine which situation you're in. That assessment drives the entire defense strategy: whether to settle early and quietly, whether to contest on the merits, whether to challenge standing or scope on a PAGA claim, and what to fix internally before anything else surfaces.

What the First 72 Hours Should Look Like

• Don't respond to the claim, the letter, or the attorney's calls without counsel

• Call a defense attorney — one who represents employers, not employees

• Preserve all records — don't delete, edit, or "clean up" any timekeeping or payroll data

• Identify who else might be affected — was this employee's situation unique or common across your workforce?

• Don't discuss the claim with other employees — this becomes a witness and liability issue

A Note on the "Just Pay and Make It Go Away" Instinct

It's understandable. The claim is stressful, the number sounds big, and settling feels like control.

But the demand number is almost always padded. Plaintiffs' attorneys stack every possible penalty, waiting time, wage statements, meal breaks, and PAGA to make the total look overwhelming. The actual exposure, once your records are analyzed, is frequently a fraction of the demand.

And settling without a proper defense analysis carries its own risks: it can signal to other employees that claims pay off, and it doesn't fix the practice that produced the claim in the first place.

Got the notice and not sure what you're actually facing? Our team does a free 15-minute case review. This is not a commitment, but just to get you a clear picture of your exposure and options. Book online today.

Disclaimer: The above content is for informational purposes only. This is not legal or tax advice. Laws, IRS guidance, and withholding requirements can change, and outcomes depend on specific facts. You are advised to contact a qualified attorney for any legal advice.