Chinese Court Rules AI‑Driven Job Replacement Cannot Justify Dismissal

On the eve of Labor Day, the Hangzhou Intermediate People's Court issued a judgment that a company’s dismissal of an employee on the grounds that artificial intelligence could replace his work violated Chinese labor law, requiring the employer to pay compensation of more than 260,000 RMB.

The employee, Zhou, was hired in 2022 as a quality‑inspector for a large‑model AI system. His duties included matching user queries with the model, filtering illegal or privacy‑infringing content, and ensuring the accuracy of the model’s output.

In 2025 the company claimed an upgrade to its AI model allowed the quality‑inspection task to be performed automatically. It offered Zhou a demotion from supervisor to regular staff and a salary reduction from 25,000 RMB to 15,000 RMB. Zhou refused the arrangement and was subsequently terminated.

The court determined that the termination was not caused by business downturn, restructuring, or other legitimate factors, but solely by the employer’s claim of AI’s cost advantage. It held that this does not meet the legal definition of a “major change of objective circumstances” that would make the labor contract impossible to perform, and that the proposed demotion and salary cut were not a reasonable negotiation.

Accordingly, the court upheld the arbitration award and ordered the employer to pay compensation according to the 2N standard.

A similar case in Beijing, reported by Beijing Daily, reached the same conclusion: AI‑driven job replacement does not equal lawful dismissal, reinforcing the emerging legal standard.

The State Council’s report released on April 30 cited the Hangzhou ruling and formally established the principle that using AI to replace workers does not automatically justify contract termination, emphasizing the need to protect workers’ rights amid rapid technological change.