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

A court in Hangzhou, China, has ruled that companies may not dismiss employees on the grounds that they are reducing costs by introducing AI. In this case, a company replaced workers with AI and dismissed employees who refused the pay cut, and was ordered to pay compensation of more than RMB 260,000. The case establishes that enterprises may not unilaterally transfer technological risks to workers.

Latest Chinese court ruling: Companies may not dismiss employees due to AI

With AI technology developing rapidly, more companies are introducing AI to replace human labor, and labor-management disputes have increasingly come to the forefront. The Intermediate People’s Court of Hangzhou, Zhejiang Province, has recently publicly released a case involving a labor dispute over AI replacing human workers.

According to reports by Xinhua News Agency and CCTV News, a 35-year-old employee surnamed Zhou joined a fintech company in Hangzhou in November 2022 and served as the supervisor in charge of quality inspection for AI large models, with a monthly salary of 25,000 RMB. His main responsibilities included overseeing answers generated by AI in interactions with users, and filtering out violations to ensure accurate model outputs.

Because the company later adopted large language models to take over the quality inspection work, in January of last year it tried to reassign the employee surnamed Zhou to a general operations position and cut his monthly salary to 15,000 RMB.

After the employee surnamed Zhou refused this major pay cut and the associated job adjustment, the company unilaterally terminated his labor contract—meaning he was directly dismissed. He then applied for labor arbitration, and the case went through arbitration as well as first-instance and second-instance court proceedings.

The Hangzhou Intermediate People’s Court ultimately held that the company’s act of dismissing the employee on the grounds of AI cost advantages constituted an unlawful termination of the labor contract. The court ordered the company to pay the employee surnamed Zhou compensation of more than 260,000 RMB—calculated using the “2N standard.”

In China, “N” refers to the number of years a laborer has worked at that unit. For each full year, one month’s wage is paid; for employment of more than six months but less than one year, it is calculated as one year; for less than six months, half a month’s wage is paid.

According to the text of the court judgment, using AI to improve efficiency falls within the scope of normal business adjustments that a company has discretion to make. Such technological upgrades do not constitute a statutorily defined circumstance under the Labor Contract Law in which “major changes in objective circumstances” have occurred. The salary reduction for the new position offered to Zhou was as high as 40%, which lacked reasonableness.

The Hangzhou court’s ruling establishes an important principle: while companies enjoy the dividends brought by AI technology, they must never unilaterally shift the risks and costs brought by technological updates onto workers.

Image source: Shutterstock. Illustrative image of Chinese workers: a 35-year-old employee surnamed Zhou is dismissed for refusing the company’s pay cut request based on AI (photo is a China labor illustrative scene).

China plans policy adjustments to proactively respond to AI’s impact on the workforce

China’s State Council specifically chose April 30 to release the detailed contents of this ruling. The next day was May 1, Labor Day, which commemorates workers, so the timing served to convey a clear position of protecting workers’ rights to the public.

In response to a potential wave of unemployment brought by AI, the overall employment market is currently in a critical period of policy adjustment.

CCTV News cited research from the International Labour Organization in 2025, noting that as many as one quarter of global jobs may be affected by generative AI, and addressing AI’s impact on employment has become an issue that the whole society must face together.

Earlier this year, China’s Ministry of Human Resources and Social Security explicitly stated that it will issue guiding documents on the impact of AI on employment, and accelerate the establishment of a monitoring, early-warning, and response system for employment effects. The Outline of China’s 15th Five-Year Plan (2026–2030) also includes relevant measures, requiring comprehensive responses to the employment-market impact of new technologies, and improving an assessment mechanism for employment effects tied to major policy and productivity arrangements.

As for specific assessment approaches, Ma Yide, a member of the National People’s Congress and the director of the Institute of Intellectual Property, University of Chinese Academy of Sciences, suggested that the government should follow the logic of environmental impact assessment systems, conducting pre-deployment evaluations and process monitoring for corporate behavior involving large-scale deployment of AI to replace human labor. Before companies initiate plans to replace large numbers of positions with AI, they must first submit an employment impact assessment report to the relevant authorities.

Experts and scholars generally believe that, at present, AI has not yet caused substantial and large-scale disruption to the overall employment market. Policymakers should seize this valuable buffer period: while promoting the development of the AI industry, they should simultaneously establish a system that takes into account both efficiency and fairness.

Citing the views of legal scholars, Xinhua News Agency emphasized that companies should not use the introduction of AI as a pretext for layoffs, nor should they evade their duties as employers. If companies truly need to make job adjustments, they should give priority to providing employees with skills training or arranging internal transfers.

Preventing AI from replacing human employees: Germany also has strict labor laws

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

In Germany, if the work of human employees faces the risk of being replaced by AI or robots, German companies may dismiss employees only under specific conditions strictly limited by labor law.

Under Germany’s “Act Against Unfair Dismissals,” if employers want to dismiss employees for operational reasons, they must simultaneously satisfy multiple strict requirements, including that the position has been permanently eliminated, the company’s operational decision is sufficiently reasonable, and the employee has absolutely no possibility of being transferred to other positions within the company to continue working.

These stringent legal thresholds are intended to ensure that the benefits of technological progress are shared by society as a whole, and to prevent frontline workers from becoming victims of the wave of technological innovation.

Further reading:
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