Chinese firms can't cut staff, adjust roles over AI adoption, court rules

A court in Hangzhou ruled that AI adoption is not an excuse for contract termination under China’s labor law after a tech company replaced a quality assurance supervisor with AI and dismissed him. 

The Hangzhou Intermediate People’s Court agreed with the ruling of a lower court, stating that the firing of the employee, identified only by his surname Zhou, was unlawful. 

AI won’t be taking jobs in China 

A Chinese court has ruled that companies cannot fire employees just to replace them with artificial intelligence (AI). The Hangzhou Intermediate People’s Court upheld the ruling of a lower court, stating that a tech company illegally dismissed a worker after AI took over his job. 

The worker, identified only by his surname Zhou, joined the tech company in November 2022, where he worked as a quality assurance supervisor checking the accuracy of AI outputs and earning a monthly salary of 25,000 yuan (approximately $3,640). 

When large language models (LLMs) automated his tasks, the company offered him a lower position with a 40% pay cut to 15,000 yuan (about $2,185) per month. 

Zhou refused the demotion and was fired as a result. The company offered 311,695 yuan (approximately $45,405) in severance and said the firing was due to organizational restructuring. The employee challenged through arbitration and won in two separate courts.

The main issue was deciding whether or not replacing employees with AI qualifies as a “major change in objective circumstances” under China’s Labor Contract Law. It is a standard that typically applies to events like company relocations or mergers, not choosing to adopt AI technology, the court found.

A similar case involving a map data collector who was replaced by AI and dismissed was published last year December by the Beijing Municipal Bureau of Human Resources and Social Security. The company’s decision to adopt AI was ruled to be a voluntary business choice, not an uncontrollable event, and so the employee’s contract was illegally terminated.

What are China’s AI ambitions?

Despite these rulings, Beijing has continued to push its industries to adopt AI at scale. Official data shows that China’s core AI industry exceeded 1.2 trillion yuan in 2025 and includes more than 6,200 enterprises. Next-generation AI terminals and agents are projected to reach a penetration rate above 90% by 2030.

The country’s generative AI adoption rate reached 42.8% in December last year, a significant increase of 25.2 percentage points year-on-year, expected to exceed 50% in 2026. Also, by the end of 2026, “AI+” applications are projected to reach 30% to 35% penetration across scientific research, manufacturing, finance, healthcare, governance, and global cooperation industries 

China’s government aims to create over 12 million new urban jobs in 2026 in response to AI adoption. Notably, 12.7 million university graduates are expected to enter the job market this year. 

Authorities intend to introduce more than 10 million subsidized training opportunities in 2026 to help workers transition into new roles. 72 new occupations, of which more than 20 are directly related to AI, were identified over the course of five years by the Ministry of Human Resources and Social Security. 

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