AI may be cheaper than a human worker, but a Chinese court says that alone is not enough reason to fire someone.
The Hangzhou Intermediate People’s Court ruled that a fintech company unlawfully dismissed an employee after arguing his role could be replaced by artificial intelligence. The court ordered the company to pay more than 260,000 yuan, or about $38,000, in compensation.
The decision adds an early legal boundary to one of AI’s biggest workplace questions: when does automation become a business efficiency tool, and when does it become an unlawful excuse to cut staff?
Court rejects AI as grounds for termination
According to the South China Morning Post, the Hangzhou Intermediate People’s Court ruled in favor of an employee dismissed after his company said AI could replace his role.
The employee, surnamed Zhou, worked on managing AI-generated responses at a fintech firm. The company attempted to demote him with a pay cut after saying AI could replace his role, and later terminated his contract.
Zhou challenged the dismissal through arbitration, and the courts ruled in his favor at each stage. Judges ordered the company to pay more than 260,000 yuan, or about $38,000, in compensation.
Judge Shi Guoqiang said, “We don’t believe AI technology has reached the point where it can substantially replace human workers.”
Court says automation is not a legal justification
NDTV noted that the case focused on whether replacing a worker with AI constitutes a “major change in objective circumstances” under Chinese labor law.
The court ruled that it does not. Judges said the company failed to prove it was impossible to retain the employee and that the alternative role offered was not a reasonable assignment.
Zhou had been offered a demotion with a roughly 40% pay cut after parts of his role were automated. When he declined, the company terminated his employment.
Similar rulings are emerging in China
Futurism also cited Xinhua News Agency, which reported that the courts rejected the company’s argument that AI adoption made it “impossible to continue the employment contract.”
“Technological progress may be irreversible, but it cannot exist outside a legal framework,” Wang Xuyang, a lawyer from the Zhejiang Xingjing law firm, told Xinhua.
Similar cases have also been reported in other Chinese courts, reinforcing the view that adopting AI is a business decision rather than a legal justification for termination.
The Hangzhou decision adds to growing legal scrutiny around how companies use AI in workforce decisions as automation expands globally.
See which roles billionaire investor Mark Cuban says are already under pressure as AI reshapes routine work and hiring demand.