Judge orders closure of Modesto company to repay workers owed wages
A Modesto judge on Thursday approved an order to shut down Martinez Pallets Services and sell off its assets to help compensate workers who have accused the company of wage theft.
Last year, Martinez Pallets Services filed for Chapter 11 bankruptcy, which allowed the company to reorganize its finances and continue operating while repaying workers over time.
The company had cited plans to downsize its $3 million commercial property in Turlock and sell some equipment to assist in funding a future plan of reorganization. Workers opposed the plan, arguing that the company’s financial situation hadn’t improved and that the proposal — later withdrawn — was not realistic.
U.S. Trustees and a bankruptcy auditor pointed to Martinez Pallets’ declining income, significant tax debts and insufficient funds to pay creditors as signs that a viable reorganization plan wasn’t possible. Workers agreed, adding that the company has not acted in good faith.
Will Kelly, executive director of North Valley Labor Federation, said typically his organization would not push for liquidation because it does not want to eliminate existing jobs. But given concerns that the company can’t be trusted to manage its assets, especially without court oversight, it seemed necessary.
Judge Ronald H. Sargis agreed and converted the case to Chapter 7 bankruptcy. This means the business must now shut down and sell its assets to repay creditors. A Chapter 7 trustee will be appointed and a new meeting of creditors will be scheduled.
The trustee will take control of the company’s property and equipment and convert those assets into as much cash as possible through auctions, private sales or potentially selling the business as a whole. Some former workers familiar with the operation may assist by advising on the value of equipment and assets.
“This feels really good. This needed to happen a long time ago,” said Araceli Lopez, the daughter of one of the workers who were never paid.
Few workers were present at the court hearing Thursday, but that’s because many of them have, fortunately, found new work, said Kelly. Those who were there left the courtroom feeling relieved knowing they are a step closer to getting the money they are owed.
“I’m really excited to finally have some good news for all the workers that have been waiting for over a year to get their money back that they have already earned and made for the company,” said Diana Diaz, lead organizer of NVLF. “I can’t wait till the day that they have a check in their hands for money that they have earned well over a year ago.”
As of February, nine employees have been seeking $628,695 in unpaid wages from Martinez Pallets.
A lengthy process
Though the conversion to Chapter 7 bankruptcy is a step forward for the workers, it’s still unclear whether they’ll recover the full amount of their claims.
Since the case began, workers haven’t received any payments or accrued interest, which is why they’ve been urging the court to move quickly.
“Their bills don’t wait,” said Kelly.
According to data from the California Labor Commissioner, only one in seven employers who received court judgments in wage claim cases in 2017 had fully paid their workers five years later.
Kelly said Martinez Pallets claimed it was working to improve its finances, mentioning a possible contract with Tesla and plans to sell its property, but has yet to make any tangible steps.
He asked the trustee what it would take to push the process forward and was told that the judge has wide discretion to give the debtor time to resolve things. It ultimately depends on when the judge decides the delays have gone on long enough.
Before the initial bankruptcy was filed, a former Martinez Pallets worker had filed a claim and it took almost two years for him to get a settlement conference.
Last year, a state auditor confirmed that severe understaffing and inadequate training at the Labor Commissioner’s Office are causing significant delays in wage theft investigation.
A bill was introduced this year that aims to improve the Labor Commissioner’s wage claim process by requiring employers to participate early and respond promptly. The bill also discourages employers from delaying or disputing valid claims without good cause, helping reduce backlogs and encouraging compliance with wage and hour laws.
When the workers requested their employment records from Martinez Pallets, they never received them. Under California law, employers can be fined $750 for failing to provide employee records within 30 days.
Kelly said that they’re fortunate the case is moving through bankruptcy court, where there’s a more effective process for recovering unpaid wages.
He also pointed out the double standard: If an employee steals from an employer, it’s treated as a crime, but when an employer withholds wages, workers are forced to navigate a long, complicated process just to get what they’re owed.
This story was originally published May 23, 2025 at 6:00 AM.
