Zhou checked AI’s work for a living. Then AI took his job. A Chinese court just told his employer to give it back.

The Hangzhou Intermediate People’s Court ruled last month that a tech company acted unlawfully when it fired a senior quality assurance supervisor after artificial intelligence automated his role. The decision, published ahead of International Workers’ Day on May 1, is among the most prominent appellate rulings to address whether AI replacement constitutes a valid reason for termination under Chinese labor law.

The worker, identified only by the surname Zhou, joined an unnamed AI company in Hangzhou — an eastern Chinese city described as an AI hub — in November 2022. He earned 25,000 yuan per month (roughly $3,640) matching user queries with large language models and filtering output for illegal or privacy-violating content. His job was to make sure AI didn’t misbehave. Then the AI learned to do that too.

When Zhou’s tasks were absorbed by the company’s own models, his employer offered him a reassignment — at 15,000 yuan a month, a 40% pay cut. He refused. The company terminated his contract, citing organizational restructuring and reduced staffing needs, and offered 311,695 yuan in severance.

Zhou wanted more. He filed for arbitration and won. The company sued in a district court in August 2025 and lost. It appealed to the intermediate court. It lost again.

The Legal Logic

The central legal question was whether AI-driven job displacement qualifies as a “major change in objective circumstances” under China’s Labor Contract Law — a provision that allows contract termination when conditions fundamentally shift beyond either party’s control.

The court said no. “Major changes” typically cover events like corporate relocations or mergers, not a company choosing to adopt new technology. The company had also failed to demonstrate that Zhou’s contract had become impossible to perform. And the alternative position — same company, three-fifths the salary — was ruled an unreasonable reassignment rather than a genuine accommodation.

“The termination grounds cited by the company did not fall under negative circumstances such as business downsizing or operational difficulties, nor did they meet the legal condition that made it ‘impossible to continue the employment contract,’” the court stated.

In its published collection of rulings on AI-related disputes, the court laid out a broader principle: “Employers are prohibited from shifting operating costs to employees.” Companies may use AI to boost efficiency, the court acknowledged, but they “cannot use technological change as a pretext for unilaterally reducing salaries and terminating contracts.”

Not an Isolated Case

Zhou’s case is not the first signal from Chinese authorities. In December 2025, the Beijing Municipal Bureau of Human Resources and Social Security published arbitration findings involving a map data collector replaced by AI. That panel ruled that the company’s adoption of AI was a voluntary business decision — not an external shock — and that by firing the worker, the company was “shifting the cost of the technological transformation to the employee.” The dismissal was ruled illegal.

Wang Xuyang, a lawyer at Zhejiang Xingjing law firm unconnected to the Hangzhou case, told state news agency Xinhua that while companies may benefit from AI efficiency gains, they “must also bear corresponding social responsibilities. AI replacement, notably, does not automatically justify terminating a labor contract.”

The Irony of Origin

That this precedent is being set in China carries a particular weight. The country’s core AI industry surpassed 1.2 trillion yuan in 2025, according to official data, with more than 6,200 enterprises. By 2030, the penetration rate of next-generation intelligent terminals and agents is projected to exceed 90 percent. China’s central government has aggressively pushed AI adoption across industries. It is not a jurisdiction the outside world associates with robust worker protections.

And yet. China’s Labor Contract Law provides job security guarantees that would be unrecognizable to most at-will employees in the US, where employers in nearly every state can fire workers for any reason not specifically protected by statute. There is no American federal law prohibiting termination due to automation, and state-level protections are thin. The EU, with its more developed labor frameworks, has not yet produced a ruling equivalent to Hangzhou’s.

Pan Helin, an economist and member of an expert committee under China’s Ministry of Industry and Information Technology, argued that while AI-driven job losses may be inevitable, companies must ensure fair transitions — including reasonable reassignment and adequate compensation. China’s 2026 government work report, for the first time, explicitly called for measures to address AI’s impact on employment.

The Question Every Government Is Now Facing

Goldman Sachs researchers cautioned in a 2025 report that it is still early in the AI adoption cycle and that the technology’s effect on employment will depend heavily on how employers choose to deploy it. That choice, the Hangzhou court has now made clear, carries legal consequences — at least in one jurisdiction.

Wang Tianyu, a researcher at the Chinese Academy of Social Sciences, framed the challenge plainly: “Technological progress may be irreversible, but it cannot exist outside a legal framework.”

Every government grappling with AI’s labor impact now has a data point. The question is whether they treat it as a curiosity or a template.

Sources