Can companies legally fire employees to replace them with AI?

In China, a court has ruled against companies firing employees to replace them with artificial intelligence solely for cost-saving purposes. This decision comes amid growing concerns about AI’s impact on employment. The case involved a 35-year-old worker, Zhou, at a fintech firm in Hangzhou, who was dismissed after rejecting a demotion and pay cut. The company argued that AI could perform his role more cheaply. However, the Hangzhou Intermediate People’s Court determined that AI technology has not advanced enough to replace human workers completely. Zhou pursued legal action and won at all stages, resulting in the court ordering the company to compensate him with over 260,000 yuan. The court concluded that replacing workers based on cost does not meet the legal criteria for a “material change in objective circumstances,” typically applied in cases like mergers. A similar ruling occurred in Guangzhou, where a court decided that replacing a graphic designer with AI did not constitute a change in “objective circumstances.”