Once the lawsuit is filed, sure, judges often try to get the parties to settle it if they can. But there is no general requirement that a defendant reply to the plaintiff's demand before the lawsuit is filed. In some small claims courts it's important for the plaintiff to send a demand prior to filing a lawsuit, and that may be what you had in mind. But bear in mind here that the OP isn't the one making the demand.
I am aware of it. But again, there is no responsibility for the defendant to respond before being served the complaint. He can ignore the former employer's out of court demands if he wishes and it won't hurt him. Of course after he is served the complaint he must respond and should the judge order a settlement conference, which is common, he'd need to at least participate in the conference. He need not agree to anything in that conference, however.
Yes, actually. Because the other side would not settle for what was offered, and I believed that while we would lose, the judgment would be less than what government was demanding. And, I was correct. So while we "lost" in the sense that the court found for the government, I saved my client a whole lot of money by getting a decision for much less than what the government wanted.
Like I said before, there is likely no harm in the OP trying to resolve it before a lawsuit is filed. He might get it resolved. My only point here is that the court isn't going to ding him, as the defendant, for failing to respond to the plaintiff's demands prior to the lawsuit being filed. He has no legal obligation to respond to those attempts by the former employer.

