A court in Hangzhou, a major AI hub in eastern China, has ruled that replacing a senior tech employee with artificial intelligence was unlawful, a decision legal scholars say could strengthen labor protections as Beijing promotes broad AI adoption.
The Hangzhou Intermediate People’s Court upheld an earlier ruling that found the worker’s dismissal unjustified. The court concluded the employer failed to show negative circumstances such as business downsizing or operational difficulties, and did not meet the legal threshold that would make it “impossible to continue the employment contract.”
The dispute centered on whether an employer may cite AI adoption as grounds for laying off staff. The employee, identified only by the surname Zhou, worked as a quality assurance supervisor at a Hangzhou technology firm, validating the accuracy of answers produced by large language models. Zhou earned about 300,000 yuan (roughly $43,900) a year before his duties were taken over by AI.
After the company reassigned Zhou to a lower-level position with a 40% pay cut, he refused the change and the firm terminated his contract, saying AI’s disruptive effect reduced its staffing needs. Zhou sought arbitration, demanding greater compensation for wrongful dismissal, and won. The company then appealed in court in 2025 after losing at the district court, but the appeal failed.
The Hangzhou court also found the large pay reduction in the alternative role to be unreasonable. Zhejiang lawyer Wang Xuyang told state media Xinhua that adopting AI does not automatically justify terminating labor contracts for cost cutting.
China’s economy has been under pressure, and rising costs tied to events such as the Iran war have squeezed corporate profits, factors that may prompt more firms to pursue cost reductions. The Hangzhou case is one of several nationwide labor disputes involving AI-driven job displacement.
Last year a data-mapping worker in Beijing who was replaced by AI also won an arbitration ruling. That panel determined the company’s shift to AI was a business decision rather than an uncontrollable event, and that firing the employee effectively shifted the cost of technological change onto the worker, making the dismissal illegal.
Legal scholars and labor advocates view the Hangzhou judgment as a sign authorities may be willing to protect workers as companies adopt new AI tools, even as Beijing encourages technological development.
Jasmine Ling contributed to this report.