A Chinese court has ruled that companies cannot legally fire employees just to replace them with cost-saving artificial intelligence (AI) tools. The Hangzhou Intermediate People’s Court delivered the verdict while hearing a case involving a senior tech worker, surnamed Zhou, who alleged his employer attempted to demote him following the implementation of AI. Zhou joined the company in November 2022 as a quality assurance supervisor with a monthly salary of 25,000 yuan (Rs 3.47 lakh).
Zhou’s role, which focused on optimising AI outputs and filtering sensitive content, was eventually automated by LLMs. Consequently, the company sought to reassign him to a lower-level position with a 40 per cent pay cut, reducing his monthly earnings to 15,000 yuan (Rs 2.08 lakh).
After Zhou refused, the company fired him, citing organisational restructuring and reduced staffing needs. Zhou was offered a severance package of 311,695 yuan (Rs 43.29 lakh), but he sought a higher compensation sum through arbitration. The arbitration panel ruled the dismissal unlawful and supported Zhou’s claim for additional compensation.
Subsequently, the tech company filed a lawsuit in a district court and later appealed the case in the Hangzhou Intermediate People’s Court. The case centred on whether replacing a worker with AI counts as a “major change in objective circumstances” under the Chinese Labour Contract Law, a valid reason to fire someone.
The court, however, ruled against the company, stating that AI automation doesn’t qualify as a “major change”. The court found that the company could not prove it was actually impossible to keep the employee on staff. It also added that the alternative position offered to Zhou was not a reasonable reassignment proposal, making the termination unlawful.
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The precedent regarding AI-related firings has been set in China. In December last year, a Beijing court came to the rescue of a map data collector whose job was automated. The court ruled that AI implementation was a voluntary business decision, not an unforeseeable catastrophe like natural disasters or policy shifts.
The judges reiterated that companies choosing the AI route must negotiate with employees, offer training and provide reasonable reassignments before giving them the pink slip.
The ruling comes at a time when companies across the globe are aggressively reducing headcounts in favour of automation brought on by the rise of LLM-powered AI tools. The likes of Oracle, Meta, Amazon, Epic Games, Spotify and Gemini, among others, have fired thousands of employees in the first five months of the year.