Sorry for the delay, but my colleague is not qualified to answer California Employment Law questions at justanswer.com, and the question appears to have been lost in the system until now.
The Division of Labor Standards Enforcement (DLSE) can impose penalities on your business and/or attach property only after obtaining a judgment against you in court. Typically, the DLSE will hold an administrative hearing first, where you have a right to defend yourself (called a "Berman" hearing). And, even if you lose, you have the opportunity to have the entire matter heard again by a Superior Court Judge, without considering any of the evidence from the administrative hearing.
At no time can the DLSE start contacting your customers so as to damage your business interests. I cannot imagine why a DLSE investigator would make such a threat, because it would give you grounds to sue the agency for a civil rights violation.
Regardless, you can refuse to pay and the DLSE will set a hearing with the administrative law judge within 90 days. At that time you can try to justify your actions, or try to prove that you are in compliance with the wage laws. You can also try to negotiate a settlement or a payment plan, if you believe you will ultimately lose this action.
And, of course, you are entitled to hire a lawyer to represent you in all of this. For an labor law attorney referral, see this link
Hope this helps.
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