A court in Hangzhou, an AI hub in eastern China, has sided with a senior tech employee whose employer replaced him with artificial intelligence. Legal scholars say the ruling is a welcome sign for labor protections as Beijing encourages widespread AI adoption.
The Hangzhou Intermediate People’s Court upheld a lower court decision finding the worker’s dismissal unlawful. The court said the company’s reasons for termination did not qualify as negative circumstances such as business downsizing or operational difficulties, nor did they meet the legal standard that would make it “impossible to continue the employment contract.”
The dispute centered on whether a company may use AI adoption as a reason to lay off staff. The employee, identified by the surname Zhou, worked at a Hangzhou tech firm as a quality assurance supervisor, primarily checking the accuracy of answers produced by large language models. His annual pay was 300,000 yuan (about $43,900) before his role was taken over by AI.
The company reassigned Zhou to a lower-level role with a 40% pay cut; he refused and the firm terminated his contract, citing the disruptive impact of AI and reduced staffing needs. Zhou sought arbitration demanding greater compensation for wrongful dismissal and won. The company sued in 2025 after losing at the district court, and lost again on appeal.
The Hangzhou court also found the large pay cut in the alternative position unreasonable. A Zhejiang lawyer, Wang Xuyang, told state media Xinhua that adopting AI does not automatically justify terminating labor contracts to reduce costs.
China’s economy has been sluggish, and corporate profits are squeezed amid rising costs linked to events such as the Iran war, which may push more businesses to seek cost cuts. The Hangzhou case is one of several labor disputes nationwide tied to AI-driven job replacements.
Last year, a data-mapping worker in Beijing who was replaced by AI also won an arbitration ruling. That panel determined the company’s switch to AI was a business decision rather than an uncontrollable event, and that terminating the employee shifted the cost of technological change onto the worker, rendering the dismissal illegal.
Jasmine Ling contributed to this report.