TL;DR
Chinese courts in Hangzhou and Beijing have ruled in two separate cases that companies cannot lay off workers simply to replace them with AI, establishing that AI adoption is a strategic business choice and not an unforeseeable change of circumstances under China’s Labor Contract Law. The rulings come as 78,000 tech workers were laid off worldwide by early 2026, almost half attributed to AI, and create a stark contrast to the US and EU, where there is no equivalent legal protection.
A quality assurance supervisor identified only as Zhou joined a technology company in Hangzhou in November 2022. His job involved working with large AI language models, optimizing their results and filtering out sensitive content. He earned 25,000 yuan a month, approximately $3,640. In 2024, the company decided that its artificial intelligence systems had improved to the point that Zhou’s role could be automated.
He was reassigned to a lower-level position with a 40 percent pay cut, reducing his salary to 15,000 yuan. Zhou refused. The company fired him. Zhou requested arbitration. The arbitration tribunal ruled that the dismissal was illegal. The company appealed. The Hangzhou Intermediate People’s Court upheld the ruling.
The court determined that a company’s decision to adopt AI is a strategic business choice, not an unforeseeable change in objective circumstances, and therefore does not qualify as a legal reason for termination under China Labor Contract Law. The company was ordered to pay compensation. The ruling, released this week, is the second decision by a Chinese court in six months to establish the same principle: a worker in China cannot be fired simply because an AI can now do its job.
The precedent
The first case was decided in Beijing. An employee surnamed Liu had worked as a data collector at a technology company since 2009, responsible for traditional manual collection of mapping data. In early 2024, the company completely moved from manual collection to AI-powered automated data collection, terminated its navigation products department, and terminated Liu’s contract, citing a material change in objective circumstances that made the contract unenforceable.
The Beijing Municipal Human Resources and Social Security Bureau published the case in December 2025 as one of its top ten labor arbitration decisions of the year. The arbitration panel ruled that the introduction of AI fell within the scope of the employer’s autonomous business decisions and represented a technological innovation implemented proactively to adapt to market conditions.
The panel concluded that such decisions may require adjustments to employment structures, but those adjustments fall within the risks that an employer should reasonably foresee during normal business operations. The company filed a lawsuit to annul the arbitration. Both the trial and appeals courts affirmed the ruling.
The legal reasoning in both cases revolves around Article 40 of China’s Labor Contract Law, which allows termination when objective circumstances materially change and render a contract unenforceable. The provision typically applies to events genuinely outside the employer’s control: force majeure, government-ordered relocations, production suspensions caused by regulatory changes.
Chinese courts have now determined, in two separate jurisdictions, that AI adoption does not meet this standard. Technology was not imposed on companies. He was chosen by them. The courts made a distinction between an external shock that makes a job impossible and an internal decision that makes a job redundant. The first is a legal basis for termination. The second is not.
The context
The rulings come at a time when the global tech industry is cutting jobs at a pace not seen since the post-pandemic corrections of 2022 and 2023. More than 78,000 tech workers were laid off in the first four months of 2026, and nearly half of those cuts were directly attributed to AI replacing human functions. Meta cut roughly 8,000 positions in May alone, and every major restructuring announcement cites AI as the main driver.
Oracle cut between 20,000 and 30,000 employees in March. Block’s CEO said the company’s reduction from 10,000 to 6,000 employees was driven by growing artificial intelligence capabilities. The restructuring of Meta is the clearest example of the pattern– Traditional roles are eliminated, savings are redirected to AI infrastructure, and the remaining workforce is refocused toward building and operating AI systems rather than performing the tasks those systems are replacing.
China is closing the gap with the United States in AI performance while spending a fraction of what American companies invest in computing. The country has no interest in slowing the adoption of AI in its economy. China launched months-long law enforcement campaign against AI misuse in 2026targeting deepfakes, fraud and misinformation, and has introduced mandatory labeling standards for AI-generated content and new regulations governing AI chatbots and virtual human services.
The government’s approach is not to restrict AI but to regulate its applications while ensuring that economic benefits do not come at the expense of social stability. China’s urban youth unemployment rate hit 15.3 percent in March, and the political sensitivity of mass layoffs in an economy already struggling with deflation, a housing crisis and weak consumer demand means court rulings are as much about policing as they are about interpreting contract law.
the comparison
The United States does not have equivalent protection. American labor law operates at will in all states except Montana, meaning that employers can fire workers for any reason that is not specifically prohibited by the statute, and being replaced by AI is not a prohibited reason.
A Senate bill has been introduced that would require companies to submit quarterly reports to the Department of Labor identifying how many employees were laid off because their functions were automated by AI, but the legislation has not been passed and is not expected to be in the current Congress. Illinois requires employers to notify workers if AI is used in hiring, discipline or firing decisions. The Colorado AI Law, which goes into effect in mid-2026, requires risk management policies and annual assessments of the impact of AI on employment decisions. None of the states have enacted anything like what Chinese courts have established: a legal principle that says AI replacement alone is not grounds for firing someone.
European Union AI Law addresses AI in employment classifying AI systems used for recruitment, selection, performance evaluation and other workplace decisions as high risk, subject to human supervision, worker notification and recording requirements. The high-risk obligations will come into full force in August 2026. But the AI Act does not prohibit AI-driven layoffs. It regulates how AI is used in employment decisions, not whether a company can eliminate positions because of AI.
The European Trade Union Confederation has called for stronger protections, and legal experts have proposed a European AI Social Pact that would combine employment support, training and social protections to cushion displacement. None of these proposals have been enacted. The gap between China’s position and that of the West is not that Europe and the United States are unaware of the problem. The thing is that they have chosen, so far, not to solve it through the courts or through legislation.
the tension
The Chinese rulings create a legal framework that is coherent on its own terms but produces genuine tension for companies operating in the country. If the adoption of AI is a strategic business choice and not an unforeseeable change in circumstances, and if strategic business choices cannot justify layoffs, then companies that invest in AI systems that automate existing functions must retrain the workers those systems replace, reassign them to equivalent positions with equivalent salaries, or continue employing them in functions that the company has determined are no longer necessary.
Courts have said that the costs of technological transformation should not be borne solely by workers. The implication is that they should be borne by the companies that chose to transform.
What AI is really doing for jobs It’s more complicated than the headlines suggest. About 71 percent of European companies are reconsidering their job responsibilities due to AI, but reconsidering is not the same as eliminating. Klarna laid off 700 customer service workers and replaced them with an AI chatbot in 2024, only to start rehiring human agents in 2026 after repeat contacts increased 25 percent and customer satisfaction deteriorated in complex interactions. The CEO publicly admitted that the strategy had failed.
The pattern among early adopters is that AI replaces tasks more effectively than jobs, and that companies that make deeper cuts are often the first to discover that the remaining human work—the judgment, the escalation, the context that the model cannot contain—is more valuable than they estimated when they decided to automate.
China’s courts have not said that companies cannot use AI. They have said that companies cannot use AI as a pretext to fire people. The distinction is important because it forces specific organizational behavior: if a role is automated, another role must be found for the person who played it, on comparable terms. That’s expensive. It is also, the courts have decided, the law.
Whether this makes Chinese companies less competitive or more resilient will depend on whether AI truly replaces workers or simply changes what workers do. Early evidence, from Klarna to 78,000 layoffs in courts in Hangzhou and Beijing, suggests the answer is still unclear and that China has decided it would prefer to err on the side of workers until it is.
