AI cost-cutting not a legal excuse to fire workers, Chinese court says

A court in China has ruled it illegal for a company to terminate an employee on the grounds that an artificial intelligence replacement would be cheaper, affirming limits on AI-driven job displacement amid a wave of anxiety over the technology’s potential to fuel unemployment. A 35-year-old worker surnamed Zhou who oversaw AI-generated responses at a fintech firm in Hangzhou, capital of east China’s Zhejiang province, was fired after refusing a demotion and pay cut. The company told him his role could be replaced by AI. “We don’t believe AI technology has reached the point where it can substantially replace human workers,” said Shi Guoqiang, a judge with the Hangzhou Intermediate People’s Court, in an interview with state broadcaster CCTV. Zhou filed for labour arbitration and won at every stage – from arbitration to trial and appeal. Courts ruled that the company had illegally terminated his contract and ordered the firm to pay Zhou over 260,000 yuan (US$38,067) in compensation, according to a recent CCTV report. The court found that replacing a worker on cost grounds did not constitute a “material change in objective circumstances” that justified terminating a labour contract, a legal standard typically applied in situations such as mergers and acquisitions. The Guangzhou Intermediate People’s Court reached the same conclusion in 2024, ruling that a graphic designer’s AI replacement did not qualify as a change in “objective circumstances”, according to CCTV. A white paper from the Hangzhou court last month showed the city handled 12,359 labour disputes in 2025, up 61.7 per cent year on year, with AI-related disputes increasingly common as the city’s AI industry continues to grow. One in four workers globally is exposed to generative AI in their jobs, according to a 2025 study by the International Labour Organization. Junior and entry-level roles were bearing the brunt of this shift, according to a Stanford working paper released last year. The study showed that US employment for workers aged 22 to 25 in the most AI-exposed occupations, such as software development and customer support, had dropped by 13 per cent since 2022 as AI began to reshape the labour market. That concern is especially acute in China, where young workers are already under pressure. China’s jobless rate for 16-to-24-year-olds, excluding students, rose to 16.9 per cent in March from 16.1 per cent in February, according to National Bureau of Statistics data. Unemployment among 25-to-29-year-olds, also excluding students, stood at 7.7 per cent in March, while the overall urban unemployment rate was 5.4 per cent.