DISMISSING employees because their positions have been replaced by artificial intelligence (AI) constitutes unlawful termination, according to a landmark case included in the annual labor dispute arbitration collection published by the Beijing Municipal Bureau of Human Resources and Social Security.

The ruling clarifies that while companies may adopt AI to enhance competitiveness, such technological upgrades do not meet the legal threshold of “significant changes in objective circumstances” required for lawful layoffs under China’s Labor Contract Law. Such changes must be uncontrollable and unforeseeable, such as natural disasters, force majeure events, or business closures and relocations driven by policy shifts.

In the published case, a technology company transitioned to an AI-led system for automated data collection in 2024. By year-end, it had eliminated the department and position of an employee, surnamed Liu, who had handled manual map data collection, and subsequently dismissed him. The labor arbitration committee ruled the termination illegal.

The committee determined that the company’s adoption of AI was a proactive business decision and a technological upgrade, not an uncontrollable external change. The move effectively shifted the normal risks of technological iteration onto the employee. The ruling emphasized that employers should first seek to negotiate changes to labor contracts, provide skills training, or reassign affected employees internally.

Qi Bin, a partner at Shanghai Pacific Legal, noted that the sweeping changes driven by rapid AI development are difficult for either employers or employees to foresee when signing labor contracts, and even industry experts often struggle to predict the full impact. From a legal perspective, he said, resolving such issues requires prolonged negotiations and collective efforts, with the evolution of laws and improvements to the social security system serving as the fundamental solutions.

According to data from PwC, up to 5 million jobs for workers aged 18 to 45 could disappear in the United States by 2050 due to automation.

(SD-Agencies)