Although Disney artists were the best paid and worked under the best conditions in the industry, there was discontent. In The Disney Version, Richard Schickel writes, "Many of the employees had given Disney large quantities of free overtime during the drive to complete the 1937 Snow White", and despite the fact that Snow White was an enormous success, "instead of getting the bonuses they had been vaguely promised, they were faced with a string of layoffs... The salary structure remained crazy-quilt, and the only general wage increase Disney granted in those years was self-serving: he brought a number of workers up over the forty-dollar-a-week level, at which point, under the Wagner Labor Relations Act, they ceased being entitled to time-and-a-half for overtime." Schickel says that Disney "responded gracelessly to the pressures of his increasingly difficult economic situation". Story conferences became brutal. "An animator working on Fantasia took piano lessons at his own expense" to increase his understanding of music, and when Disney found out about it, he snarled "What are you, some kind of fag?" This quote may, however, be apocryphal, since according to other sources, more sympathetic than Schickel, Disney did appreciate his artist's interest in art forms other than animation. In Bob Thomas' biography, Disney is quoted as saying: "What young artists need is a school where they can learn a variety of skills, a place where there is cross-pollination."
As the biggest and most successful animation studio, Disney was an obvious target for the Screen Cartoonists' Guild. There was a layoff which seemed to target members of the Guild selectively, and things reached a boiling point when Disney fired animator Art Babbitt, whom Disney regarded as a "troublemaker". Three days later, on May 29, 1941, the strike began, instigated by Herb Sorrell, described as a "tough left-winger" (and, by conservative writer Peter Schweizer, as a Soviet spy). Thomas relates that Disney had insisted on a vote among his employees, but Sorrel feared he would lose the vote, and decided to strike without a vote. Sorrel also used outside people, "sluggers", in the picket lines.
The strike occurred during the making of the animated feature Dumbo, and a number of strikers are caricatured in the feature as clowns who go to "hit the big boss for a raise".
The strike lasted five weeks. Toward the end, Disney accepted a suggestion by Nelson Rockefeller, then head of the Latin American Affairs office in the State department, that he make a tour of Latin America as a goodwill ambassador. His removal from the scene enabled passions to cool, and in his absence the strike was settled with the help of a federal mediator, who found in the Guild's favor on every issue. The Disney studio signed a contract and has been a union shop ever since. Irreparable damage to the psychology and mood of the studio had, nevertheless, been done. Schickel quotes a letter in which Disney said that "it cleaned house at our studio" and got rid of "the chip-on-the-shoulder boys and the world-owes-me-a-living lads". Those that left, however, included such notables as Walt Kelly, Bill Tytla, and Virgil Partch. The departures also included Zack Schwartz, Dave Hilberman, and John Hubley, who all went on to form a new animation studio known as United Productions of America, or UPA. UPA's innovative work took artistic leadership of the animated cartoon field away from Disney during the early 1950s. Afterwards, Disney was no longer seen as a practitioner of an American art form, but merely as a motion-picture manufacturer who stamped out high-quality product in a glossy but formulaic house style.
Ironically, an unfair labor practices suit brought by Art Babbitt worked its way through the courts while Babbitt was serving in the Armed Forces, and Disney was forced to rehire him when he returned at the end of the war. The most notable animators (besides Babbit and Tytla) to leave Disney included, in addition to the UPA founders, Kenneth Muse, Ray Patterson, Preston Blair, Ed Love, Walter Clinton, Grant Simmons, Jack Bradbury, Bill Meléndez, Emery Hawkins, Maurice Noble, Cornett Wood, Claude Smith, Bernie Wolf,Ted Bonnicskin, Alfred Abranz, T. Hee, Frank Tashlin, and Howard Swift. Many of the people later became known for their work at other animation studios, including Metro-Goldwyn-Mayer, Warner Bros. Cartoons, Walter Lantz Productions, and Screen Gems, and most of those people left these studios in the early 1950s to work at UPA.