After asking AI company to file for bankruptcy, Disney makes an offer to its employees

After asking AI company to file for bankruptcy, Disney makes an offer to its employees, said to be suffering from ‘diminishing morale’

Disney has offered jobs to employees of Character AI, which recently announced bankruptcy. According to bankruptcy court filings Bloomberg reviewed, the entertainment major has agreed to hire more than 60 workers from the AI chatbot platform and pay them about $180 million over the first three years.

The offer comes after Character AI sought bankruptcy protection in October, following legal challenges and mounting costs associated with lawsuits over alleged harm to underage users.​Character AI had warned that its employees were experiencing “diminishing morale” and faced the risk of a mass exodus. The proposed arrangement, which still requires approval from a bankruptcy judge, forms part of a broader licensing deal that gives Disney access to Character's AI technology.​

Disney offers jobs and retention payments to Character employees

​Under the proposed agreement, Disney would hire most of Character's workforce covered by the deal. In addition to regular compensation, Disney has set aside another $30 million for future retention awards, with portions scheduled to be paid on the first and second anniversaries of the deal's completion.​Former Character CEO Karandeep Anand joined Disney weeks before the bankruptcy filing as part of the broader licensing arrangement.

The employee offer comes amid competition among technology companies to recruit and retain workers with artificial intelligence expertise.​According to court filings, Disney had already paid $7.5 million toward the $20 million purchase price before Character filed for bankruptcy. The bankruptcy judge and a committee representing unsecured creditors could scrutinise the arrangement.​A higher offer could emerge in the coming weeks. Character has said Disney would allow employees to interview with other companies, while a bankruptcy auction could take place in November if competing bids are received.​

Character faces lawsuits and investigations over chatbot safety

​Character sought bankruptcy protection after incurring significant costs defending lawsuits alleging that its products harmed underage users.​One of the lawsuits filed was from a Florida woman who sued the company in 2024 when her son killed himself after having a dependency on a chatbot with a Game of Thrones character. The lawsuit alleged that the platform “failed to offer help or notify his parents when he expressed suicidal ideation.”

The case was settled earlier this year, although government investigations remain pending.​Chapter 11 bankruptcy proceedings can let companies acquire assets without assuming certain liabilities that arose before the sale. However, the protection does not cover every potential legal obligation.​“The bankruptcy laws are designed to allow Disney to acquire the assets free from liability,” said Patrick Collins, a restructuring lawyer at Farrell Fritz, a law firm that isn't involved in the case.​Collins said the protection applies to liabilities arising before the sale of Character's assets closes.​

State officials seek safeguards for younger users

​In another October court filing, state attorneys general called for measures to protect children if a buyer acquires Character's platform. These include effective age verification and safeguards against exposing children to open-ended conversations involving sexual, violent, or harmful content.​Lawyers for the states said that the human-like quality of AI chatbots like those produced by Character “can blur the distinction between artificial interactions and genuine human relationships, posing particular risks to children and adolescents, whose emotional regulation, judgment, and interpersonal boundaries are still developing.”​Character previously said it had introduced safety changes, including a ban on open-ended chats for users under 18. The company has also said it is actively discussing a settlement with state authorities.