Man in China fired after being replaced by AI, court deems termination unlawful, awards him compensation

An employee in Hangzhou, China, who was terminated after his job was replaced by Artificial Intelligence, has had his termination deemed unlawful by a Chinese court and awarded additional compensation as a result.

Demoted, then terminated

Xinhua reports that the employee, surnamed Zhou, had been employed by a company in Hangzhou since 2022 as a quality assurance supervisor, and was responsible for, amongst other things, filtering illegal or privacy-violating content, and ensuring accurate output by AI models.

For this, he was paid RMB25,000 (S$4,660) a month.

But when his job was taken over by an AI-driven Large Language Model, he was reassigned to a lower-level position and had his salary reduced to RMB15,000 (S$2,800) a month.

Zhou refused the new position and was terminated by the company, which offered him RMB311,695 (S$58,120) in compensation, about a year’s worth of salary.

It was not explained how the compensation amount was calculated.

Zhou, however, contested the compensation through an arbitration panel, which agreed with him, ruling the termination unlawful and granting Zhou additional compensation.

Not a major change

His former company then filed a lawsuit trying to overturn the arbitration result, appealing to the Hangzhou Intermediate People’s Court.

But they found no success there either, and the court said that the company's finding an AI model that could perform Zhou’s job function did not constitute a “major change in the objective circumstances”, which would allow for Zhou’s termination.

Such a major change is equated to a company relocating or merging with another company.

The court also ruled that the company had not shown that Zhou’s work contract was no longer possible, and that the lower-level position offered to Zhou was not a “reasonable reassignment proposal.”

The termination of Zhou’s contract was therefore deemed unlawful.

AI not an automatic justification

A lawyer in China that Xinhua spoke to explained the importance of the ruling, saying it clarified an important principle: “while companies (in China) may benefit from AI-driven efficiency gains, they must also bear corresponding social responsibilities.”

“AI replacement does not automatically justify terminating a labour contract.”

This principle was also displayed in a similar case from 2025, where a map data collector’s dismissal was determined not to be valid by another arbitration panel.

The panel, located in Beijing, found that the involved company’s adoption of AI technology was a voluntary action to maintain competitiveness, and by using it to justify job dismissals, the company had “shifted the risk of technological iteration onto its employees.”

Several legal experts cited by Xinhua drove home the point that the costs of technological transformation should not only affect workers.

The Xinhua article also quoted Pan Helin, a member of an expert committee under the China Ministry of Industry and Information Technology, who said that companies must ensure fair treatment during transitions, even if AI-driven job displacement was inevitable.