The Intermediate People's Court of Hangzhou found that a technology company in eastern China had unlawfully terminated an employee after he declined a demotion triggered by the automation of his position through AI.

"The reason for the dismissal does not fall under negative circumstances such as business contraction or operational difficulties — nor does it satisfy the legal condition under which continuing an employment contract becomes impossible," the court stated. Companies cannot unilaterally dismiss workers or cut their pay on grounds of technological change, it added.

The employee, identified in court documents as Zhou, worked as a quality control specialist whose job was to verify the accuracy of outputs generated by large language models. When an AI system took over that function, management moved to demote him and reduce his salary by 40%. Zhou refused the reassignment, and the company dismissed him, citing headcount reductions made possible by the rollout of neural networks.

The case went through arbitration before entering the Chinese court system, which ultimately upheld Zhou's right to a severance package.

The ruling builds on a precedent established by a Chinese court in December 2025, when a similar dismissal was found to fall short of the legal threshold required for terminating an employment contract on technological grounds.

The decisions come at a sensitive moment. Chinese companies are pushing hard to integrate AI systems as part of a state-driven effort to claim global leadership in the technology. At the same time, Communist Party strategists have stressed that labor market stability is a priority — particularly as economic growth slows and youth unemployment remains stubbornly high.