A court in eastern China's Hangzhou city, an AI hub, has ruled in favor of a senior tech worker whose company replaced him with artificial intelligence (AI).
The decision is being hailed by legal scholars as a reassuring signal for labor rights protection at a time when the central Chinese leadership is pushing for industries to widely adopt AI technology.
The Hangzhou Intermediate People's Court upheld an earlier decision by a lower-level court that the tech worker's dismissal was unlawful.
"The termination grounds cited by the company did not fall under negative circumstances such as business downsizing or operational difficulties, nor did they meet the legal condition that made it 'impossible to continue the employment contract,'" the court said in a published article.
At the heart of the case is whether a company can use AI replacement as a pretext for laying off human workers.
The worker, identified by the court only by his surname Zhou, was employed at a tech firm in Hangzhou, Zhejiang province, as a quality assurance supervisor. The tech firm was not named by the court. Zhou primarily worked with AI large language models and verified the accuracy of answers they generated for users.
Zhou earned an annual salary of 300,000 yuan ($43,900) before AI took over his job. The company reassigned him, but to a lower-level position with a 40% pay cut.
He refused and the company ended Zhou's contract citing the disruptive impact of AI on the role and reduced staffing needs.
Zhou filed an arbitration claim demanding higher compensation for wrongful termination and won. The company disagreed and filed a lawsuit in 2025. It lost at a district-level court. Now it lost again in the appeal.
Hangzhou court also ruled that it was not reasonable that the alternative position the company offered Zhou came with a substantial salary cut.
A Zhejiang lawyer Wang Xuyang, who is not connected to the Hangzhou case, told state-run news agency Xinhua that AI adoption doesn't automatically justify a company terminating a labor contract to cut costs.
But corporate profits have been squeezed as the Chinese economy remains sluggish. Add to that the rising costs brought on by the Iran war, and businesses will likely be looking for more ways to cut costs.
The case is among several labor disputes arising from AI job replacements across Chinese cities.
Last year, a data mapping worker in Beijing who was replaced by AI and dismissed also won his case through arbitration. The arbitration panel said the tech company's decision to switch to AI was a business choice rather than from an uncontrollable event.
It said by terminating the employee contract, the company was shifting the cost of the technological transformation to the employee, and ruled the dismissal illegal.
Jasmine Ling contributed to this report
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