Hangzhou Court: AI Adoption Can’t Alone Justify Firings

The Hangzhou Intermediate People’s Court ruled that companies may not fire or demote employees solely because their tasks are automated by artificial intelligence, upholding a lower court decision that found a tech firm’s dismissal unlawful.

The case involved an employee identified by his surname, Zhou, who joined the company in November 2022 as a quality assurance supervisor responsible for checking AI outputs. Zhou earned 25,000 yuan per month. When large language models automated many of his tasks, the employer offered him a lower post with a 40% pay cut to 15,000 yuan per month. He refused the demotion and was dismissed. The company offered 311,695 yuan in severance and described the change as an organizational restructuring. Zhou sought arbitration and won in two courts before the Hangzhou Intermediate People’s Court affirmed those rulings.

The central legal question was whether replacing staff with AI counts as a “major change in objective circumstances” under China’s Labor Contract Law, a standard used to allow employers to alter or end contracts in cases like relocations or mergers. The court concluded that adopting new technology is a voluntary business decision and does not meet the threshold of an uncontrollable external event.

A December case published by a Beijing labor authority reached a similar conclusion in a dispute involving a map data collector who was replaced by AI and dismissed.

The Hangzhou decision found the employee’s contract was illegally terminated and noted that employers must follow statutory protections when changing staff arrangements. The ruling did not prohibit companies from adopting AI, but it limited the use of automation as the sole legal basis for termination or demotion without complying with labor law procedures.

Official figures cited by authorities show China’s core AI industry exceeded 1.2 trillion yuan in 2025 and included more than 6,200 enterprises. Projections expect next-generation AI terminals and agents to reach a penetration rate above 90% by 2030. Generative AI adoption reached 42.8% in December of the previous year, up 25.2 percentage points year-on-year, and is expected to exceed 50% in 2026. By the end of 2026, officials project that “AI+” applications will reach 30% to 35% penetration across scientific research, manufacturing, finance, healthcare, governance and global cooperation sectors.

To address labor-market changes tied to automation, authorities plan measures focused on jobs and training. The government aims to create more than 12 million new urban jobs in 2026 while preparing for about 12.7 million university graduates entering the job market. Officials intend to provide over 10 million subsidized training opportunities in 2026. Over the past five years, the Ministry of Human Resources and Social Security identified 72 new occupations, more than 20 of which are directly related to AI.

The Hangzhou ruling joins a developing set of cases and guidance in China that draw a legal distinction between voluntary corporate decisions to adopt new technology and external events that might justify unilateral changes to labor contracts.