A company was prevented by a court from firing employees because of AI

The verdict came after a trial involving a technology company in eastern China firing an employee because he refused to be demoted because his job was being replaced by AI.

According to the lawsuit, the employee, named Zhou, was responsible for checking the accuracy of output from large language models (LLMs). However, an AI system was then able to take over that step. The company demoted Zhou, cut his salary by 40% and transferred him to another job. When this person refused, the business fired him with the reason “reducing personnel due to the application of artificial intelligence”.

“The reason for terminating the contract given by the enterprise does not fall into negative cases, such as downsizing the business scale, experiencing operational difficulties, nor does it meet the legal condition of ‘unable to continue the labor contract'”, according to the ruling.

In a separate statement on QQ, court representatives emphasized that companies cannot arbitrarily fire employees or reduce salaries on the grounds of technological advancement. This is part of the content White paper on the resolution of labor and personnel disputes of Hangzhou courts (2021-2025) announced by the Hangzhou Intermediate People’s Court.

Theo Bloombergthe ruling was made in a context where the government is having to balance the need to stabilize the domestic labor market with the global race for AI. On the one hand, Chinese companies promote the deployment of artificial intelligence systems and are encouraged by the government. On the other hand, policymakers have shown their willingness to prioritize stabilizing the labor market when the country is facing a declining economy and high unemployment rate.

Late last year, researcher Shan Zhiguang of China’s State Information Center said policymakers should “carefully design” tools to respond to the serious challenge posed by AI. He raised the concept of “taxing robots”, emphasizing “the need to transfer corporate profits from using AI to workers in difficulty” to solve the problem.

The new ruling is based on a precedent set by another Chinese court in December 2025, which held that an enterprise’s deployment of AI “does not meet the necessary legal standards” to terminate a personnel contract. Still, according to Fortunethis is the first time a mid-level court has ruled directly on AI – a precedent that could impact millions of businesses in the “country of billions of people”.