How to Respond to a Demand Letter Against Your Business

What Should You Do in the First Days After a Demand Letter Arrives?

In the first days after a demand letter arrives, I suggest four steps before any reply, because each one keeps your options open. The steps are calendaring the date the letter names, preserving the records, notifying your insurer, and deciding who will speak for the business.

1. Calendar the date. I suggest recording the date the letter names, the date you received it, and how it arrived, because those facts can matter to a contract’s notice terms. The section on what a demand letter’s deadline controls explains what that date does and does not do.
2. Preserve the records. I suggest keeping the contracts, invoices, emails, texts, photos, physical items, and files about the dispute, and turning off any automatic deletion that would reach them, because the duty to preserve evidence can start before a lawsuit.
3. Notify your insurer. I suggest sending a copy of the letter under the policy’s notice terms, because the policy’s notice terms set when and how the insurer must hear about a claim.
4. Choose one voice. I suggest that one person speak and write for the business about the claim, because employees’ statements about their work can be offered against the business.

The preservation step has a legal basis. In Miller v. Lankow, 801 N.W.2d 120 (Minn. 2011), a homeowner’s moisture-damage case, the Minnesota Supreme Court reaffirmed “the fundamental duty of every party to preserve relevant evidence for use in litigation.” Relying on an earlier decision, the court said that duty arises before any lawsuit is filed, “whenever a party knows or should know that litigation is reasonably foreseeable.” A letter threatening suit can supply that knowledge, so I suggest treating its arrival as the start of the duty. If a repair, a redo, or another legitimate need would change physical evidence of the dispute, the court in Miller said that “when a custodial party with a legitimate need to destroy evidence gives notice that is sufficient for the noncustodial parties to protect themselves by taking steps to inspect or preserve the evidence and the noncustodial parties nevertheless do nothing to inspect the evidence, sanctions for spoliation may not be appropriate,” but that notice “will not excuse a failure to preserve evidence where a party destroys evidence without a legitimate need to do so, or destroys evidence in bad faith.” I suggest giving the other side written notice and a chance to inspect before any repair or redo. My page on when missing emails become spoliation covers what a court can do when records disappear.

What Does the Deadline in a Demand Letter Actually Control?

The deadline a demand letter names is a date the sender chose, but some demands start a clock set by statute. A court deadline comes from a summons, a statute, or a court order, and a contract between you and the sender can add deadlines of its own. The items below cover the statutory clocks a demand can start.

A former employee’s wage demand. When an employer discharges an employee, Minn. Stat. § 181.13(a) makes earned and unpaid wages “immediately due and payable upon demand of the employee,” and the demand “must be in writing.” If the wages “are not paid within 24 hours after demand,” “the employer is in default.” In addition to the unpaid wages, the employee “may charge and collect a penalty equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay or the rate required by law, whichever rate is greater, for each day up to 15 days, that the employer is in default, until full payment or other settlement, satisfactory to the discharged employee, is made.” If the employee quit or resigned, Minn. Stat. § 181.14, subd. 1(a), applies instead, and unless a collective bargaining agreement provides otherwise, wages are due “not later than the first regularly scheduled payday following the employee’s final day of employment.” Under the same paragraph, “If the first regularly scheduled payday is less than five calendar days following the employee’s final day of employment, full payment may be delayed until the second regularly scheduled payday but shall not exceed a total of 20 calendar days following the employee’s final day of employment.” Under subd. 2, wages not paid by then “shall become immediately payable upon the demand of the employee,” and a penalty runs if they “are not paid within 24 hours after the demand.” If you dispute the amount, subd. 3 provides that an employer that “makes a legal tender of the amount which the employer in good faith claims to be due” is protected: it “shall not be liable for any sum greater than the amount so tendered and interest thereon at the legal rate,” unless the employee recovers more in court. If the employee was “entrusted with the collection, disbursement, or handling of money or property,” subd. 4 gives the employer “ten calendar days after the termination of the employment to audit and adjust the accounts of the employee” before the wages are due, and the penalty then runs “only from the date of demand made after the expiration of the period allowed for payment of the employee’s wages or commissions.” Subd. 4 also provides that “No employer shall make any deduction, directly or indirectly, from the wages due or earned by any employee, who is not an independent contractor, for lost or stolen property, damage to property, or to recover any other claimed indebtedness running from employee to employer, except as permitted by section 181.79.” Check the current text of §§ 181.13 and 181.14 before relying on these periods.

A co-owner’s demand for company records. In a corporation that is not publicly held, Minn. Stat. § 302A.461, subd. 4(a), gives a shareholder “an absolute right, upon written demand,” to examine and copy the share register and the documents listed in subdivision 2 “at any reasonable time,” and “the corporation shall make available within ten days after receipt by an officer of the corporation of the written demand.” In a manager-managed or board-managed LLC, Minn. Stat. § 322C.0410, subd. 2(3), provides that “Within ten days after receiving a demand” from a member, the company “shall in a record inform the member that made the demand” of what it will provide, when, and where, or of its reasons for declining. Check the current text of §§ 302A.461 and 322C.0410 before relying on these periods.

A notice that your business’s check bounced. Under Minn. Stat. § 604.113, subd. 2(b), “If the amount of the dishonored check is not paid within 30 days after the payee or holder has mailed notice of dishonor pursuant to section 609.535 and a description of the penalties contained in this subdivision,” the issuer is liable for “the amount of the check, the service charge as provided in paragraph (a), plus a civil penalty of up to $100 or the value of the check, whichever is greater,” interest “from the date of dishonor,” and, above the statute’s dollar threshold, “reasonable attorney fees.” Subd. 1(d) excludes from “dishonor” a “dishonor due to a stop payment order requested by an issuer who has a good faith defense to payment on the check,” but its next sentence provides that dishonor “does include a stop payment order requested by an issuer if the account did not have sufficient funds for payment of the check at the time of presentment, except for stop payment orders on a check found to be stolen.” Check the current text of § 604.113 before relying on this period.

The claimant’s time to sue. Limitations statutes, not the letter, set how long the claimant has to file suit. For a contract claim, Minn. Stat. § 541.05, subd. 1, provides that “Except where the Uniform Commercial Code otherwise prescribes, the following actions shall be commenced within six years” and lists actions “upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed.” For a contract to sell goods, Minn. Stat. § 336.2-725(1) provides that “An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued,” and “By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.” The same section provides: “The limitations in this section do not apply to actions for the breach of any contract for sale of a grain storage structure or other goods that are incorporated into an improvement to real property, except equipment and machinery. These actions are subject only to the statute of limitations set forth in section 541.051.” The section also “does not apply to claims against sellers of goods for damages to property caused by the goods where the property that is damaged is not the goods and the sale is not a sale between parties who are each merchants in goods of the kind.” Other claims carry other periods. Check the current text of these statutes before relying on these periods.

Interest on the claim. A written demand can start interest on a later judgment that the interest statute reaches. Under Minn. Stat. § 549.09, subd. 1(b), “Except as otherwise provided by contract or allowed by law,” interest before the verdict on money damages runs from “the commencement of the action or a demand for arbitration, or the time of a written notice of claim, whichever occurs first, except as provided herein.” The same paragraph adds: “The action must be commenced within two years of a written notice of claim for interest to begin to accrue from the time of the notice of claim.” Check the current text of § 549.09 before relying on this period. On a judgment over $50,000, other than one for or against the state or a political subdivision or in a family court action, the statute sets the rate at “ten percent per year until paid.” The statute lists awards that get no interest before the verdict, among them “judgments or awards for future damages,” “punitive damages, fines, or other damages that are noncompensatory in nature,” and, by reference to the conciliation court limit in Minn. Stat. § 491A.01, subd. 3a, “judgments or awards not in excess of the amount specified in section 491A.01.” For a valid claim the interest reaches, waiting costs money, which is one reason to evaluate the letter early. When a party has served a written offer of settlement and the losing party’s offer was closer to the judgment, the winner “shall receive interest only on the amount of the settlement offer or the judgment or award, whichever is less,” as the FAQ on settlement offers explains.

Your contract’s terms. A contract with the sender may require written notice of a dispute, a chance to cure, mediation before suit, or arbitration. Those terms can bind your business, so I suggest reading the contract before choosing a response.

How Do You Judge Whether the Claim Against You Is Strong?

A demand letter’s strength depends on four things: a legal basis for the claim, evidence of the facts, damages that add up, and who could end up paying attorney fees. Testing each one tells you what the claim is worth to the sender, which sets how hard you can push back.

1. The legal basis. The first question is which contract term, statute, or legal theory the letter relies on. A letter that names none gives you less to evaluate, and asking the sender for it costs nothing.
2. The evidence. I suggest comparing what the letter attaches or describes with your own records, because your emails, change orders, and delivery records may tell a different story.
3. The number. In one exchange with someone who had received a demand from a former employer’s attorney, I pointed out that a settlement demand is not a damages calculation. What the sender says its damages are, and what any agreement says about remedies and fees, set the real exposure.
4. Attorney fees. I suggest checking whether a contract between you has an attorney-fee clause, and whether the claim rests on a statute that shifts fees, because fees can exceed the amount in dispute. Under Minn. Stat. § 325D.45, subd. 2, a court in a deceptive-trade-practice case “may award attorneys’ fees to the prevailing party” against a claimant who sued “knowing it to be groundless,” or against a business that “willfully engaged in the trade practice knowing it to be deceptive.”

An overreaching letter can expose its sender, and my page on the claims the recipient of an overreaching letter can bring back covers that side. My page on sending a demand letter in Minnesota shows what a well-built demand contains, which is a useful yardstick for the one you received.

What Are Your Options for Responding to a Demand Letter?

You have at least eight ways to respond to a demand letter, legal and non-legal, and several can be combined. Each fits a different goal and carries a different cost and risk. I suggest starting from the outcome you want most, such as ending the dispute quickly, paying nothing, or keeping a customer or vendor relationship, because that goal decides which route fits.

Not Responding

Silence fits a letter that is plainly baseless, small, or from someone with no relationship to protect. It costs nothing up front unless the demand starts one of the statutory clocks in the deadline section. Its risk is that the sender may sue, its version stays the only written account, and any interest the statute allows on a valid claim keeps running. If the letter encloses an invoice or statement of account you dispute, silence carries one more risk: under Meagher v. Kavli, 88 N.W.2d 871 (Minn. 1958), “retention of a statement of account without objection for more than a reasonable length of time may under certain circumstances operate as proof of an acquiescence in or an admission of the correctness of the statement of account.” I suggest objecting in writing to any balance you dispute. If a summons follows, my page on what to do if your business is served with a lawsuit covers the deadline to answer, and the filing-first section covers a company’s appearance through a licensed attorney.

A Direct Call Between Owners

A call between owners fits when the dispute grows out of an ongoing relationship or a misunderstanding that a business fix could solve. It costs an hour of your time. Its risk is that what you say is your business’s own statement. A lawyer on the other side does not stop the owners from talking: Minn. R. Prof. Conduct 4.2 bars a lawyer, not a party, from communicating “about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.” I suggest keeping the call to business terms and confirming any agreement in writing.

Paying or Fixing the Business Problem

Paying, refunding, redoing the work, or changing a practice fits when the claim is valid or the fight would cost more than the demand. The cost is the payment or the fix. Its risk is paying without a signed settlement and release, which leaves no signed record of what the payment resolved. Redoing work that would change physical evidence of the dispute raises the notice question covered in the preservation section. A former employee’s release of Minnesota Human Rights Act or federal age claims has added rules under Minn. Stat. § 363A.31, subd. 2, and the federal 29 U.S.C. § 626(f). Under § 626(f)(1), a waiver of age claims “may not be considered knowing and voluntary unless at a minimum” it meets every listed condition, among them that “the waiver specifically refers to rights or claims arising under this chapter” and that “the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled.” The FAQ on releases describes the timing rules.

A Negotiated Written Response

A letter from you fits a modest dispute where the facts are clear and you want a record of your position or a counteroffer. It costs your time. Its risk is an admission in your own words, and the section on how a reply can be used against your business covers what to keep out.

An Attorney’s Written Response

An attorney’s letter states your business’s position, answers the claim’s legal basis, asks for the documents the claim rests on, and says that the business keeps every defense and claim it has. It fits a large or legally complex claim; it may not be worth the fee when the demand is smaller than the fee or a call could settle the dispute. In one exchange about a demand from a former employer’s attorney, I suggested letting an attorney answer the demand rather than the recipient, because anything the recipient wrote would become part of the record. An attorney’s letter can be offered against the business too, because Minn. R. Evid. 801(d)(2) reaches “a statement by a person authorized by the party to make a statement concerning the subject.”

Tendering the Claim to Your Insurer

Tendering fits whenever a policy might cover the claim, and it can run alongside any other route. The section on tendering a demand letter to your insurer covers the steps.

Mediation

Mediation fits when both sides want to resolve the dispute and a neutral person could help, especially where the relationship is worth keeping. The cost is the mediator’s fee, which the parties can agree to split, and a day of your time. Its risk lies in the paperwork. Minn. Stat. § 572.33, subd. 4, defines a “mediated settlement agreement” as a signed and dated written settlement “of a controversy identified in an agreement to mediate,” and subd. 3 defines an “agreement to mediate” as “a written agreement” that, among other terms, “provides for termination of mediation upon written notice from either party or the mediator delivered by certified mail or personally to the other people who signed the agreement, is signed by the parties and mediator and is dated.” For an agreement within those definitions, Minn. Stat. § 572.35, subd. 1, provides that “A mediated settlement agreement is not binding unless” one of two conditions is met. The first is that it states that it is binding and that the parties were advised in writing of three things. Those are that the mediator has no duty to protect their interests, that signing may adversely affect their legal rights, and that they should consult an attorney if uncertain of their rights. The second is that “the parties were otherwise advised of the conditions in clause (1).” Under subd. 2, “a mediated settlement agreement between a debtor and creditor is not binding until 72 hours after it is signed by the debtor and creditor, during which time either party may withdraw consent to the binding character of the agreement.” If a former employee’s demand claims discrimination under the Minnesota Human Rights Act and no charge or lawsuit has been filed, Minn. Stat. § 363A.28, subd. 3(b), requires a business that joins mediation or another dispute resolution process the subdivision lists to “notify the department and the charging party in writing of the participation in the process and the date the process commenced and shall also notify the department and the charging party of the ending date of the process.” A business that does not “is barred from raising the defense that the statute of limitations has run unless one year plus a period of time equal to the suspension period has passed.” Check the current text of §§ 572.35 and 363A.28 before relying on these periods.

Filing First for a Declaratory Judgment

Filing first fits when a threat hangs over your ongoing business, such as a competitor’s claim that your product name infringes, and you want a court to decide the question. Under Minn. Stat. § 555.01, “Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed.” In federal court, 28 U.S.C. § 2201(a) allows a declaration “In a case of actual controversy within its jurisdiction, except with respect to Federal taxes” and a few other listed matters. The cost is a lawsuit, and the risk is escalating a dispute the letter alone might not have. Under Minn. Stat. § 555.06, a court “may refuse to render or enter a declaratory judgment or decree” that “would not terminate the uncertainty or controversy giving rise to the proceeding.” In Nicollet Restoration, Inc. v. Turnham, 486 N.W.2d 753 (Minn. 1992), the Minnesota Supreme Court affirmed the dismissal with prejudice of a corporation’s case that it pursued without counsel and reaffirmed “that a corporation must be represented by a licensed attorney when appearing in district court.” In 301 Clifton Place L.L.C. v. 301 Clifton Place Condominium Ass’n, 783 N.W.2d 551 (Minn. Ct. App. 2010), the Court of Appeals agreed that the rule “applies to LLCs.”

How Can What You Write Back Be Used Against Your Business?

Anything your business writes back can be offered against it in court, with one protection for real settlement talk. Under Minn. R. Evid. 801(d)(2), a statement offered against a party is not hearsay when it is, among other things, “the party’s own statement,” “a statement by a person authorized by the party to make a statement concerning the subject,” or a statement by its employee or agent “concerning a matter within the scope of the agency or employment, made during the existence of the relationship.”

The protection is Minn. R. Evid. 408. Offering or accepting something of value “in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount,” and “Evidence of conduct or statements made in compromise negotiations is likewise not admissible.” The rule has limits. It “does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations,” and it allows evidence “offered for another purpose.” In federal court, Fed. R. Evid. 408(a) gives similar protection to “conduct or a statement made during compromise negotiations about the claim.”

In practice, I suggest three habits, because each keeps a reply from becoming the other side’s exhibit:

1. Separate the letters. Your factual position can go in one letter and any settlement offer in another, so the offer stays tied to compromising a disputed claim.
2. Leave out casual admissions. An apology for a late delivery or a line conceding a mistake can come back as evidence of liability.
3. Keep threats out. Under Minn. Stat. § 609.27, subd. 1, a person who “orally or in writing makes any of the following threats and thereby causes another against the other’s will to do any act or forbear doing a lawful act is guilty of coercion and may be sentenced as provided in subdivision 2.” The listed threats include “a threat to unlawfully injure a trade, business, profession, or calling” and “a threat to make or cause to be made a criminal charge, whether true or false.”

How Do You Tender a Demand Letter to Your Insurer?

To tender a demand letter, send your insurer a copy through the claim contact or agent the policy names, with a short note asking the insurer to defend and cover the claim. The policy’s text, not the letter, decides whether the letter counts as a claim and when notice is due.

The policies worth checking include commercial general liability, employment practices liability, directors and officers, professional or errors and omissions, and cyber coverage. In each, read the definition of “claim”: if it includes a written demand for money or services, the letter may already be one. The notice condition says when and how to report. I suggest also reading any clause requiring the insurer’s consent before you settle or admit anything, because a payment made without that consent may fall outside the coverage.

Another business may owe you a defense too, such as a vendor, customer, or general contractor under an indemnity clause. In one exchange with someone who had received a demand from a former employer’s attorney, one of my suggestions was asking the current employer, in writing, whether it would defend or indemnify. My page on an insurer’s duty to defend explains how that duty works once a tender is made.

What Other Professionals Help With a Demand Letter?

Two other professions can handle parts of a demand-letter response, at a cost that can be lower than an attorney’s for that part.

1. An insurance agent or broker can identify which of your policies may respond, find the claim-reporting address, and send the notice.
2. A certified public accountant (CPA) can check the arithmetic behind the demand against your invoices and payment records, and advise how a settlement payment is recorded and treated for tax purposes.

A broker or CPA does not answer the legal questions: whether the claim is valid, what the response should say, and the terms of any settlement agreement and release.

Responding to a Demand Letter Against Your Business

I suggest handling a demand letter in a set order, because each early step protects the later ones. The order is calendaring the date, preserving the records, and choosing one voice for the business, then notifying your insurer and testing the claim’s basis, evidence, numbers, and fee exposure. The last step is choosing the least costly route that serves your goal, whether that is silence, a call, a payment, a written reply, mediation, or filing first.

If you want to know which response fits your facts, email [email protected] with a brief description of the letter. I can start an intake and conflict check before you send any confidential documents. My broader material on business litigation in Minnesota covers what follows if the dispute reaches court.