Considering you've worked there 7 years (Score 1)

Do not under any circumstances go out like a bitch. You have done good work and been reasonably loyal to your employer. And now, you're being threatened in such a way that it brings your professional competence into doubt. Sorry, but you've worked too hard to stand for this. As many have suggested, you should go to HR. Describe the threat that was made and make a display of being fairly distraught about the whole thing. Explain why this is unfair and explain that it puts you in an uncomfortable position. Make mention of the word lawsuit. Not reporting the matter...or worse, acquiescing to their demand, is NOT an option. Corporations do the sorts of things that they are doing to you because of a belief they can get away with it. As the Dunning-Kruger effect proves, stupid people never realize just how stupid they are acting. If they weren't stupid, they'd behave in a way that was remotely intelligent. You're smart. Take a stance against this stupidity. Future employers should talk to HR and become aware that not only did you do outstanding work in your time there, but in your final days, your boss resorted to using extortive tactics to get what he/she wanted, and you refused to give in. That might be a better endorsement of your character than anything your sleazy boss(es) could every say about you.