Companies cannot fire workers to replace them with AI, China courts rule

CHINESE companies cannot legally fire employees simply to replace them with cost-saving artificial intelligence, courts in the country have ruled, setting a significant precedent for labour rights as automation sweeps the tech sector.

A technology company’s effort to reassign and drastically cut the pay of an employee because their job could be automated by AI—which ultimately led to the worker’s dismissal—was deemed an illegal termination by courts in Hangzhou.

On Apr 28, the Intermediate People’s Court of Hangzhou released a batch of typical cases regarding AI enterprises and the protection of workers’ rights. One closely watched case centred on a labour dispute between a tech company and an employee surnamed Zhou.

Zhou worked in a quality-assurance role at the tech firm, checking the accuracy of sentences generated by AI language models. Citing the impact of AI advancements on the project and a need for optimisation, the company attempted to reassign Zhou and slash the monthly salary from 25,000 yuan (US$3,655) to 15,000 yuan. When Zhou rejected the pay cut, the tech company then fired the worker.

Zhou immediately sought labour arbitration and demanded compensation for wrongful termination. The arbitration panel backed the worker, prompting the tech company to file a lawsuit in the Yuhang District Court.

China mandates that labour disputes undergo arbitration before reaching trial. According to the country’s Labour Dispute Mediation and Arbitration Law, parties must first take their disagreements to mediation and arbitration commissions; if dissatisfied with the verdict, they can then pursue litigation.

During the trial, the Yuhang District Court noted that replacing a worker essentially because AI can complete the job cheaper does not fall under legally permitted grounds for termination, such as business closures or poor management.

Furthermore, the court found it did not meet the legal threshold of an “objective major change” that renders a contract impossible to fulfil. Because the proposed new role featured a severely reduced salary, the court ruled it did not constitute a reasonable negotiation offer, declaring the dismissal illegal and ordering the company to pay compensation.

Upon appeal, the Hangzhou Intermediate Court upheld the original verdict.

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Protecting workers from the algorithm

Under Chinese labour law, employers and employees can modify contract terms by mutual agreement. Unilateral termination by an employer is largely restricted to cases involving mutual consent, worker misconduct or situations where a worker is incompetent. Companies can also terminate a contract if a major, unforeseeable objective change makes fulfilment impossible, provided they give 30 days’ written notice or one month’s severance pay.

When explaining the significance of the ruling, the Hangzhou Intermediate Court noted that integrating AI is a proactive business strategy meant to keep a company competitive. While such technological upgrades might shift a company’s operational structure, they do not inherently qualify as a legally binding objective major change that justifies voiding labour contracts.

“Artificial intelligence should be used to liberate labour, promote employment, and benefit livelihoods,” the court stated. The law permits companies to undergo tech-driven transitions, but they must still safeguard employees’ legal rights.

The court advised that if AI restructuring is necessary, corporations should prioritise retraining staff to handle more advanced roles requiring human intervention, creating a win-win scenario for productivity and job security. If reassigning staff is unavoidable, firms must provide reasonable offers and compensate for added commuting or housing costs. Alternatively, workers are encouraged to proactively upgrade their skills to adapt to the AI era.

A deliberate business choice

The Beijing Human Resources and Social Security Bureau also highlighted a similar AI-related job dispute on Dec 26, 2025.

In that earlier case, a data collector surnamed Liu joined a tech firm in July 2009 to handle manual map entries. In early 2024, the company pivoted entirely to automated, AI-driven data collection to adapt to shifting markets. It eliminated its manual navigation division and Liu’s role.

In late 2024, the tech company dismissed Liu, claiming an objective major change in circumstances had made the labour contract impossible to fulfil and that the two parties could not agree on new terms. Liu fought the decision through arbitration and won compensation for wrongful termination.

The dispute largely hinged on whether eliminating a job through AI adoption constitutes an objective major change in circumstances under China’s Labour Contract Law.

Guidelines issued jointly by the Beijing High Court and local arbitration boards define these major changes as unforeseeable events outside an employer’s control—such as natural disasters, government policy shifts or forced relocations—that make continuing a labour contract financially ruinous or impossible. The defining traits are uncontrollability and unpredictability, placing them outside the scope of daily business risk.

The Beijing labour bureau noted that the tech company’s pivot to AI was a deliberate management decision. While this commercial strategy predictably shifted structural staffing needs, it lacked the required unpredictability. By firing Liu, the authorities reasoned, the company illegally pushed its own expected technological iteration risks onto the employee. CAIXIN GLOBAL