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Amid the global wave of artificial intelligence (AI) sweeping through the economy, the question of whether workers will be replaced by AI has become a pressing concern. A recent ruling by the Hangzhou Intermediate People’s Court in China underscores that employers cannot use AI adoption as a way to bypass labor rights obligations.
According to Xinhua, the case began in November 2022 when a senior employee surnamed Chu joined an AI technology company as a QA supervisor on a monthly salary of 25,000 yuan. Chu’s role involved supporting technology development, including reconciling user queries with large language models (LLMs) and filtering out content infringing privacy to help ensure AI outputs were accurate.
Subsequently, the LLMs learned enough to take over Chu’s duties. The company responded by cutting costs and transferring Chu to a lower position, reducing her monthly salary to 15,000 yuan. After Chu refused the change, the company terminated her contract unilaterally, citing “restructuring.”
Chu challenged the termination and sought compensation higher than the 311,695 yuan proposed by the company. The Hangzhou court issued its final ruling affirming that Chu’s dismissal was illegal.
The dispute centered on how to interpret China’s Labour Contract Law. The company argued that adopting AI amounted to a “significant change in the objective circumstances,” making the original contract unenforceable. The court rejected that position.
The court said that “significant change in the objective circumstances” generally applies to events such as relocation or corporate mergers. In contrast, the adoption of AI was characterized as a proactive choice by the company to improve competitiveness rather than an external factor.
The court also found that proposing a new position with a deep salary cut was an unreasonable transformation plan, effectively shifting the risks of digital transformation onto workers.
Lawyer Wang Xuyang of Zhejiang Xingjing Law Firm said the ruling clarifies a key principle: enterprises can benefit from the efficiency AI brings, but they must also bear corresponding social responsibilities. Replacing workers with AI, the lawyer said, does not automatically provide a legal basis to terminate employment.
Wang Xuyang also noted that this is not the first time Chinese authorities have addressed worker protections amid AI adoption. Late last year, Beijing’s Bureau of Human Resources and Social Security announced a similar case involving a data-collection employee.
Official data cited in the report indicate that China’s core AI industry surpassed 1.2 trillion yuan in 2025, with more than 6,200 enterprises active. By 2030, the penetration rate of new-generation smart devices is expected to exceed 90%.
The AI boom has also been linked to distortions, including the use of digital clones of former employees and the conversion of human capabilities into AI-reusable skill sets.
Wang Tianyu, a researcher at the Chinese Academy of Social Sciences, warned that while technological progress may be irreversible, it cannot operate outside a legal framework. He said protecting workers’ dignity and rights requires a governance framework with a long-term vision.
Pan Helin, an economist with the Ministry’s expert committee, said that although job shifts driven by AI may be difficult to avoid, companies must ensure fairness during transitions. This includes retraining, proper reassignment, or fair compensation if layoffs are necessary.
In a 2025 report, Goldman Sachs also emphasized that the employment impact of AI largely depends on how business leaders deploy the technology in a humane way.
The Hangzhou ruling is presented as both a win for Chu and a warning to businesses planning to use AI. While technology can change how work is performed, the decision highlights that it cannot replace the ethical and legal commitments companies owe to workers, who are described as the real value creators for society.
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