Chinese courts rule AI-driven layoffs and pay cuts illegal

Chinese courts have ruled that replacing human workers with AI and cutting their pay constitutes unlawful dismissal, as disputes over artificial intelligence-driven layoffs rise, China Media Group reported on Sunday.

In a recent case, an AI quality inspection supervisor, surnamed Zhou, at a fintech firm in Hangzhou, Zhejiang province, was demoted from team leader to a general operations role, with his monthly salary slashed from 25,000 yuan ($3,643) to 15,000 yuan. After he refused to accept the change, the company terminated his contract, citing technological upgrades and AI replacement.

Both labor arbitration and court rulings, including the recent rulings from the Hangzhou Intermediate People's Court, found the dismissal illegal. The court ordered the company to pay Zhou over 260,000 yuan in compensation.

Another notable case occurred in 2024, a graphic designer in Guangzhou, Guangdong province, lost his job to AI. The Guangzhou Intermediate People's Court ruled that using AI was a business decision to adapt to market changes and did not qualify as a "major change in objective circumstances" — a legal provision that would allow contract termination.

Both rulings affirm that businesses cannot transfer the risks of normal technological upgrades onto employees. The Hangzhou court also stressed that any job adjustment must be based on fair negotiation, adding that a 40-percent pay cut was not reasonable.

According to a 2025 International Labour Organization study, a quarter of global jobs could be affected by generative AI. Lawmakers and experts say responding to AI's impact on employment is a shared societal challenge, not just a corporate issue.

During this year's national two sessions, Ma Yide, an NPC deputy and dean of the School of Intellectual Property at the University of Chinese Academy of Sciences, said that before large-scale AI deployment replaces workers, companies should be required to submit employment impact assessment reports to regulators and undergo pre-deployment evaluation and ongoing monitoring.

China is taking broader action. Earlier this year, the Ministry of Human Resources and Social Security pledged to accelerate the development of an AI employment impact monitoring and early warning system. The outline of the 15th Five-Year Plan (2026-30) also calls for integrating AI's effects into employment assessment mechanisms for major policies, projects, and productivity planning.