The American Apparel founder, who was ousted over an investigation into "alleged misconduct" last week, has hired lawyer Patricia Glaser to represent him.
Glaser said Thursday in a letter to American Apparel's board of directors that Charney planned to sue the company if he doesn't get his job back.
Glaser claimed that the retailer "violated its legal and contractual obligations to Mr. Charney in numerous respects," by giving him one day to choose between resigning or being fired. She wrote that the board gave Charney a termination letter detailing "numerous false and misleading statements" against the outspoken and controversial entrepreneur.
"By presenting Mr. Charney with this absurd and unreasonable demand, the Company acted in a manner that was not merely unconscionable but illegal," Glaser said in the letter.
American Apparel's board said in a statement last week that it had decided to replace Charney after an investigation into "alleged misconduct."
American Apparel's new co-chair, Allan Mayer, said that the board of directors launched an investigation to Carney -- who has faced several sexual harassment accusations in the last decade -- when "new information came to light."
According to the New York Times, American Apparel's investigation found that the 45-year-old businessman had misused company funds.
The probe reportedly also found that Charney allowed an employee to publish naked photos of a woman who sued him for sexual harassment.