Chinese courts: Cannot dismiss employees solely because of AI! Someone was fired for refusing a pay cut, and the company must pay 260k RMB

China’s Hangzhou Court Rules Companies Cannot Fire Employees Using AI Cost-Cutting as a Pretext. A company dismissed employees who refused pay cuts due to AI replacement and was ordered to pay over 260k RMB. This case establishes that companies cannot unilaterally shift technological risks onto workers.

Latest Chinese Court Ruling: Cannot Fire Employees Because of AI

With the rapid development of AI technology, the situation of companies replacing human labor with AI is increasing, and labor disputes have come to the forefront. The Intermediate People’s Court of Hangzhou, Zhejiang Province, recently publicly handled a labor dispute case involving AI replacing human workers.

According to reports from Xinhua News Agency and CCTV News, a 35-year-old employee surnamed Zhou joined a fintech company in Hangzhou in November 2022, serving as AI large model quality inspection supervisor, with a monthly salary of 25k RMB, mainly responsible for overseeing answers generated by AI and user interactions, filtering out violations to ensure accurate model output.

Because the company later adopted large language models to take over quality inspection work, it attempted in January last year to demote Zhou to a regular operations position and cut his monthly salary to 15k RMB.

After Zhou refused this significant salary reduction, he was unilaterally dismissed by the company, meaning he was directly fired. He then filed for labor arbitration, and the case went through arbitration, as well as first and second-instance court proceedings.

The Hangzhou Intermediate People’s Court ultimately ruled that the company’s dismissal of the employee on the grounds of AI cost advantages constituted an illegal termination of the employment contract, and ordered the company to pay Zhou more than 260k RMB in compensation, calculated based on the “2N standard.”

In China, the “N” refers to the number of years the employee has worked at the company. Each full year warrants one month’s wages; those with more than six months but less than a year are counted as a full year; less than six months warrants half a month’s wages.

According to the court’s judgment, the company’s use of AI to improve efficiency falls within normal operational adjustments, which are within the company’s autonomous management scope. Such technological upgrades do not constitute a legal reason for termination due to “significant changes in objective circumstances” under the Labor Contract Law. The new position offered to Zhou had a salary reduction of up to 40%, which lacks reasonableness.

The court’s ruling in Hangzhou establishes an important principle: while companies enjoy the benefits of AI technology, they cannot unilaterally transfer the risks and costs associated with technological updates onto workers.

Image source: Shutterstock Chinese worker illustration showing Zhou, a 35-year-old employee, being dismissed for refusing a pay cut due to AI (illustrative image)

Proactive Response to AI Workforce Impact: China Plans Policy Adjustments

The Chinese State Council specifically announced the detailed content of this ruling on April 30, just before the May 1 Labor Day holiday, which commemorates workers’ rights, signaling a clear stance to protect labor rights.

In the face of potential mass unemployment caused by AI, the overall employment market is in a critical period of policy adjustment.

CCTV News cited a 2025 study by the International Labour Organization, indicating that up to a quarter of global jobs could be affected by generative AI, making it a societal challenge that must be collectively addressed.

The Ministry of Human Resources and Social Security of China explicitly stated earlier this year that it will issue guiding documents on AI’s impact on employment and accelerate the establishment of monitoring and early warning systems for employment effects. China’s 14th Five-Year Plan also incorporates relevant measures, requiring comprehensive responses to the impact of new technologies on the labor market and improving mechanisms for employment impact assessment within major policies and productivity layouts.

Regarding specific assessment methods, Ma Yide, a member of the National People’s Congress and director of the Intellectual Property Institute at the University of Chinese Academy of Sciences, suggested that the government should refer to environmental impact assessment systems, implementing pre-deployment evaluations and process monitoring for large-scale AI deployment replacing human labor. Before launching large-scale AI replacement plans, companies must submit employment impact assessment reports to regulatory authorities.

Experts generally believe that AI has not yet caused substantial and large-scale disruption to the overall employment market. Policymakers should seize this valuable buffer period to promote AI industry development while simultaneously establishing a system that balances efficiency and fairness.

Xinhua News Agency also quoted legal scholars emphasizing that companies should not use AI implementation as an excuse for layoffs, nor should they evade employer responsibilities. If job adjustments are necessary, priority should be given to providing employee skills training or internal transfers.

Germany’s Strict Labor Laws to Prevent AI Replacing Human Workers

The widespread adoption of AI technology has triggered global worker anxiety over unemployment, and the protection of workers’ rights has become a focus for many countries.

In Germany, if a human employee’s job faces the risk of being replaced by AI or robots, companies can only dismiss employees under strict conditions specified by labor law.

According to Germany’s “Protection Against Unfair Dismissal Act,” employers must meet several stringent conditions to dismiss employees for operational reasons, including that the position has been permanently eliminated, the company’s decision is fully justified, and the employee has no possibility of transferring to another internal position.

These strict legal thresholds aim to ensure that the benefits of technological progress are shared by society as a whole and to prevent low-level workers from becoming victims of the wave of technological innovation.

Further reading:
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