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 of “cutting costs by introducing AI.” In this case, a company used AI to replace human labor and dismissed employees who refused to accept a pay cut, and it was ordered to pay compensation of more than 260,000 yuan. The case establishes that companies cannot unilaterally shift technological risks to workers.

Latest Chinese court ruling: Employees may not be dismissed because of AI

With the rapid development of AI technology, more companies have been introducing AI to replace human labor, and labor-management disputes have increasingly come to the forefront. The Intermediate People’s Court of Hangzhou in Zhejiang Province recently publicly released a case involving a labor dispute in which AI replaced 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. He served as the supervisor of AI large-model quality inspection, with a monthly salary of 25,000 yuan, and was mainly responsible for reviewing answers generated by AI during interactions with users, as well as filtering out violations to ensure the model’s outputs are accurate.

After the company later adopted large language models to take over the quality inspection work, it attempted in January of last year to reassign Zhou to an ordinary operations position and cut his monthly salary to 15,000 yuan.

After Zhou refused this major pay cut and the accompanying job reassignment, the company unilaterally terminated his labor contract—meaning he was dismissed directly. He then brought the matter to 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 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 exceeding 260,000 yuan, using the “2N standard.”

In China, “N” is defined as the number of years the worker has been employed by that employer. For each full year, one month’s wage is paid; for employment of more than six months but less than a year, it is counted as one year; for less than six months, half a month’s wage is paid.

According to the court’s judgment, the company’s use of AI to improve efficiency falls within the scope of normal adjustments under its independent business operations. Such technological upgrades do not constitute a legally recognized dismissal circumstance under the Labor Contract Law in which “major changes in objective circumstances” have occurred. The pay cut in the new position offered by the company was as high as 40%, making it unreasonable.

The court’s ruling in Hangzhou establishes an important principle: while companies enjoy the benefits (dividends) of AI technology, they must never unilaterally transfer the risks and costs brought by technological updates to workers.

Image source: Shutterstock A 35-year-old employee surnamed Zhou was dismissed for refusing the company’s request to cut pay because of AI (photo is an illustration of Chinese laborers)

Preparing for the AI labor shock in advance: China plans policy adjustments

The State Council of China specifically chose April 30 to announce the detailed contents of this ruling. The very next day was May 1, Labor Day, which commemorates workers’ rights, thereby sending a clear message to the outside world about its stance on protecting workers’ rights.

In the face of a potential wave of unemployment brought about by AI, the overall job market is in a critical period of policy adjustment.

CCTV News cited a 2025 study by the International Labour Organization, indicating that as many as one quarter of global employment positions may be affected by generative AI, and addressing AI’s impact on employment has become a challenge that the whole society must confront together.

Earlier this year, China’s Ministry of Human Resources and Social Security explicitly stated that it will issue guidance documents regarding AI’s impact on employment and accelerate the establishment of a monitoring, early-warning, and response system. The 15th Five-Year Plan outline for China also incorporates relevant measures, requiring a comprehensive response to the employment-market impacts caused by the development of new technologies, and the improvement of an evaluation mechanism for employment effects related to major policies and productivity plans.

Regarding specific evaluation methods, Ma Yide, a National People’s Congress deputy and director of the Institute of Intellectual Property at the University of the Chinese Academy of Sciences, suggested that the government should follow the logic of environmental impact assessment systems and carry out pre-assessments and ongoing monitoring for companies’ large-scale deployment of AI to replace human labor. Before launching large-scale plans to replace jobs with AI, companies must first submit an employment impact assessment report to the competent authorities.

Experts generally believe that AI has not yet caused substantial and large-scale disruption to the overall employment market. Policymakers should make good use of this valuable buffer period: while promoting the development of the AI industry, they should simultaneously establish an institutional framework that balances efficiency and fairness.

Xinhua News Agency also quoted legal scholars who emphasized that companies should not use the introduction of AI as an excuse for layoffs, nor can they evade the employer responsibilities they must fulfill. If a company truly needs to adjust positions, it should prioritize providing employees with skills training or arranging internal transfers.

To prevent humans from being replaced by AI: Germany also has strict labor laws

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

In Germany, if a human worker’s job faces the risk of being replaced by AI or robots, German companies may dismiss employees only under strictly limited conditions defined by labor law.

Under Germany’s “Act on the Protection Against Unfair Dismissal,” if a company wants to dismiss an employee for operational reasons, it must simultaneously meet multiple strict requirements, including that the position has been permanently eliminated, the company’s operational decision is sufficiently reasonable, and there is absolutely no possibility that the employee can be transferred to another position within the company to continue working.

These stringent legal thresholds are intended to ensure that the fruits of technological progress are shared by society as a whole, and to prevent low-wage workers from becoming victims of the wave of technological change.

Further reading:
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