A Chinese court has ruled that companies cannot dismiss employees or slash their salaries simply because artificial intelligence (AI) can perform their tasks. The landmark decision establishes a significant legal precedent amid a global wave of AI automation, where many corporations are adopting the technology to cut costs and reduce headcount.
The case involved a male employee who joined a technology company in 2022 as a quality control manager. His primary responsibility was to audit AI-generated outputs to filter out illegal and copyright-infringing content, earning a monthly salary of approximately 25,000 yuan (around 125,000 baht).
However, after the company successfully upgraded its AI systems to automate this verification process, management demoted the employee to an operational role and cut his salary to 15,000 yuan (about 72,000 baht). When he rejected the demotion and pay cut, the company terminated his contract, citing "corporate restructuring" and the necessity to reduce staff.
The employee contested the dismissal through labour arbitration and the dispute eventually escalated to the Hangzhou Intermediate People’s Court. The court ultimately ruled in favour of the employee, declaring that the introduction of AI does not constitute a legally valid justification for termination.
Under Chinese labour law, companies are permitted to lay off staff only under major changes in objective circumstances, such as severe economic crises or events that render business operations impossible, the court explained. In contrast, deploying AI to replace human labour is a voluntary business decision rather than an unavoidable force majeure.
Furthermore, the court deemed that offering a lower position alongside a near-50% salary reduction did not constitute a reasonable or fair job relocation offer.
The ruling sends a clear signal to employers navigating the AI era: companies looking to integrate automation should prioritise negotiations, reskill programmes or finding alternative suitable roles within the organisation, rather than using AI as an excuse for immediate layoffs.
Analysts view this judgement as a foundational milestone for labour protection in the age of automation. It underscores that no matter how rapidly technology evolves, corporations remain legally responsible for their workforce. Ultimately, AI should serve as a tool to enhance productivity, not as a pretext to shed workers or evade labour obligations.
Nevertheless, the Chinese court's decision does not imply a blanket ban on corporate layoffs. Companies can still downsize provided they follow statutory labour procedures and present clear, legitimate grounds, such as demonstrable business hardships or operational restructuring, while ensuring proper severance pay and protection of workers' rights.
The judgement instead clarifies that companies cannot simply claim AI can replace human workers as a shortcut to bypass labour protections required under Chinese law.
Source: Techspot, Hangzhou Intermediate People’s Court, The Guardian
