The Hangzhou Intermediate People's Court recently found a local tech firm liable for unlawfully terminating an employee amid disputes over post adjustment and pay cuts.

The dispute involved Zhou, a former AI content reviewer tasked with evaluating outputs from the firm's large language model. The company proposed transferring him to a new role at a 40% pay cut, citing AI-driven project optimization. After Zhou rejected the offer, the firm terminated his contract. Both the district and intermediate courts ruled the dismissal was unlawful.

At the heart of the case was whether AI-driven job replacement constitutes a "major change in the objective circumstances," which can lead to termination of the contract under China's Labor Contract Law.

Lu Jingbo, managing partner at Shanghai River Delta Law Firm and the All-China Federation of Trade Unions (ACFTU) legal expert, said cases like Zhou's reflect a structural tension between corporate survival and worker protections amid rapid technological upgrading. While enterprises face intense market pressure to adopt AI for cost efficiency, employees prioritize job security and stable incomes, seeking to work alongside AI rather than be replaced by it.

Lu emphasized that Chinese labor law is founded on the principle of balancing the interests of both parties. He noted that while policies encourage the use of new technologies to develop "new quality productive forces," this does not grant companies rights to arbitrarily cut staff, nor justify arbitrary layoffs, nor allow prioritizing corporate development over employment stability. "If companies capture all the dividends of technological change while workers bear the costs through lost jobs and rights violations, the balance of interests is broken," Lu stated.

As China accelerates its industrial AI rollout, similar conflicts have moved to the forefront of regulatory focus regarding employment stability and rights protection.

This ruling noted that where role adjustments are necessary, firms are encouraged to prioritize upskilling pathways to move staff toward higher-skill, intervention-focused posts before considering lateral transfers and provide proportionate compensation for verifiable added costs such as commuting or relocation tied to new assignments. Workers are likewise encouraged to update skills continuously to align with evolving operational needs.

The ruling was part of a batch of exemplary cases released by Hangzhou courts covering rights protection for workers in AI-related sectors, as regional tech sector growth drives demand for clearer norms around mutually beneficial transition practices.