Diaz said she worked as an undocumented worker for Whitman from 2000 to 2009 and was not paid for all the hours she put in. She also alleges Whitman knew her immigration status, but kept her on staff anyway.
"Throughout her employment with Ms. Whitman, Nicky was undocumented. And she alleges Ms. Whitman was aware of her status," Allred said Wednesday.
Diaz claims Whitman fired her last year for political reasons after she decided to run for governor. Whitman fired Diaz two months after she announced her campaign for governor.
"In short, it was a nightmare, and the way that Nicky was treated by her employer, Ms. Whitman, caused Nicky to feel exploited, disrespected, humiliated, and emotionally and financially abused," Allred said during a news conference.
Whitman and her husband went through an employment agency that supposedly vetted Diaz's legality.
Whitman was reached by satellite Wednesday and was asked about the allegation that she knew for nine years that her housekeeper was illegal.
"Absolutely untrue," said Whitman. "We hired Nicky through an employment agency. She had presented them with a Social Security card, a driver's license, filled out a 1099. She absolutely represented herself as being here legally."
She was also asked about Allred's allegation that the Social Security Administration asked Whitman about a bogus Social Security number for Diaz.
"I don't think they sent it to our house," said Whitman. "I haven't seen a copy of it. We never saw such a letter."
The alleged letter was supposedly received in 2003. Diaz says she regularly picked up Whitman's mail.
"We didn't need to ask her that. We asked the agency -- we said we can only hire people who are here legally," said Whitman. "That is one of our requirements for hiring a housekeeper. And she had all the documentation."
The documents state Diaz can accept employment in the U.S. They list her schooling in Mexico City, including a high-school and a college degree.
Diaz said she never hid her status from Whitman. She says Whitman refused to help her.
"From now on, you don't know me, and I don't know you," said Diaz. "You never have seen me, and I have never seen you."
"You know who I feel really sorry for? Nicky," said Whitman. "Nicky was part of our extended family. She worked with us for nine years. She is a great individual and I feel so badly because she is being manipulated."
The announcement of the lawsuit comes a day after Whitman's first debate with Democratic gubernatorial candidate Jerry Brown.
Whitman's spokeswoman Andrea Jones Rivera said the allegations are clearly politically motivated.
"With the polls tied, it comes as no surprise that the morning after a successful debate for Meg that the sleaze machine of the political left is now focused on the politics of personal destruction," Rivera said in a statement.
"Gloria Allred is a shameful manipulator and the timing of today's news conference so close to the election should serve as a warning to Californians that they are witnessing dirty political smears at their worst," she said.
In the past, Gloria Allred has been a supporter and financial contributor to Democratic candidate Jerry Brown.
Allred said she's going to have documentation Thursday to back up the maid's charges.
Whitman responded to the allegations in a statement:
"We consider Nicky a friend of our family and were saddened this morning to hear about her legal action.
"After 9 years of faithful service, Nicky came to us in June 2009 and confessed that she was an illegal worker. Nicky had falsified the hiring documents and personal information she provided to the employment agency that brought her to us in 2000. Nicky told me that she was admitting her deception now because she was aware that her lie might come out during the campaign. Nicky said she was concerned about hurting my family and me.
"As required by law, once we learned she was an illegal worker, I immediately terminated Nicky's employment. It was one of the hardest things I've ever done. I considered Nicky a friend and a part of our extended family.
"I am deeply worried about Nicky and her family. I believe Nicky is being manipulated by Gloria Allred for political and financial purposes during the last few weeks of a hotly contested election. This is a shameful example of the politics of personal destruction practiced by people like Jerry Brown and Gloria Allred. The charges are without merit. I will continue to focus my campaign on the issues that the people of California want to hear about: jobs, education and fixing our broken budget system in Sacramento."