The article describes a landmark legal case in China where a company was found to have unlawfully terminated an employee who was replaced by AI. The article highlights the potential impact of AI on the labor market and the need for legal frameworks to address the challenges posed by technological advancements.
A particular legal case from China has also caught the interest and attention of many commentators in the West for its potential future significance. In a major landmarkdecision, the Hangzhou Intermediate People’s Court upheld a ruling, reached after three years, that a company had unlawfully transferred the risks and costs of technological change onto an employee, in violation of China’s Labor Contract Law. In other words, the Court ruled that the company illegally fired one of their employees for automating his role through AI.
When a quality assurance supervisor at a Hangzhou tech firm, referred to semi-anonymously (“Zhou”), was employed to verify the accuracy of outputs generated by AI large language models (LLMs, such as ChatGPT, Claude, etc.), he likely thought nothing of it. Indeed, there is an emerging industry that contracts individuals to check, approve, and refine the output of LLMs, such as DataAnnotation who task their contractors with providing live feedback as well as providing the second L—language—for the Model. Some have joked that these folks are training their replacements.
The Chinese Court ruled that it was decidedly not a joke. After Zhou had sufficiently trained the AI model, his company automated his role, and then reassigned him to a lower-level position with a 40% pay cut. He refused—which I think we can all understand—after which the company terminated him, citing AI displacement and reduced staffing needs. That was in 2023, and, after three years, the case has finally been settled—at a deliberately timed moment.
The case was published by the Hangzhou Intermediate People’s Court amongst a set of other “typical examples” of cases “protecting the rights of AI enterprises and workers” in the lead-up to International Workers’ Day on May 1st.
The case is not unique in its circumstances, but what was particularly at question here was whether AI-driven job replacement, rather than a naturally occurring adoption of technology, constituted a “major change in objective circumstances,” which is specified under China’s Labour Contract Law. The precedents set for “major changes” include “significant events like the company’s relocation or mergers,” while the Court also ruled that “the company had failed to demonstrate that the contract had become impossible to perform.”
The timing of the ruling was, evidently, political as much as anything else; in a nation with a State-official ideology, the Courts are hardly independent as much as in the West, and the assumption here is that the Chinese Communist Party is attempting to send a message that it is prioritizing labor market stability in the global AI adoption race (perhaps tacitly acknowledging the potential problem of a large wave of unemployment). Nations are grappling with the impact of widespread AI adoption on their populations, but this has grabbed global attention for its potential impact on labor relations.
In China, the commentary has been sympathetic to the ruling and to Zhou. “Technological progress,” said lawyer Wang Zuyang to the state-run publication Xinhua, “may be irreversible, but it cannot exist outside a legal framework.” The ruling itself built on a case from December 2025 which argued that a data-mapping employee could not be reasonably replaced by an AI program.
The ruling is certainly significant for at least one reason: China’s AI industry topped 1.2 trillion yuan in 2025 (roughly $176 billion), and, as pointed out on China.org, “by 2030, the penetration rate of next-generation intelligent terminals and agents in China is expected to exceed 90%.” The value of the AI industry has raised concerns about the replacement of workers, and it seems that the ruling is an attempt to respect existing Chinese law while making a political statement.
Such stories always make me think of the Luddites. Between 1811 and 1817, in a wave of protests that came to be named after the (mythical) figure of Ned Ludd, many workers smashed the mechanized looms and knitting frames that were seen to be replacing them. The Luddites were not motivated by any particular ideology. They were not conservatives seeking to prevent the tides of progress, nor were they socialists who believed their labor was being appropriated. Instead, they were simply artisans who feared that the introduction of machines would remove the craft that went into their products, while simultaneously making themselves redundant, because anybody could be trained to use the machine. The skilled middle classes of their time, the Luddites have since been maligned as selfish and impudent.
Such a pattern has repeated itself since. Michael Sandel, in Democracy’s Discontent, traced the emergence of the American labor movements as the political extension of the developments that saw the decline of the cottage industry and self-reliant men and women of the 19th century as a threat to the republican virtues of early America, as a self-governing people.
The responses that the AI revolution will excite are still emerging: Will it be a Luddite-esque rage of the disappearing skills, or a counter-revolution that explicitly bans the use of AI? Will it really matter, if the singularity occurs? All we can say for certain is that the case of Zhou in China has already started sending ripples across the world. Futurism has drawn a conclusion of binary simplification on the outcome, claiming that China is “gear[ing] up to protect workers” while “laborers remain largely on their own in much of the Western world.”
Schumpeter called capitalism “creative destruction.” The rise and fall of industries is inevitable. In Britain, perhaps one of the most famous examples is Argos, a retailer that heralded the end of catalogue-shopping through its strategic placement of warehouses with retail fronts in towns across the country, only to be gutted by Amazon and next-day delivery. The way in which AI will displace other industries needs to be managed—but is it the State’s place to manage it? China seems to think so; it will be interesting to see what other nations think.
- JAKE SCOTTDr Jake Scott is a political theorist specialising in populism and its relationship to political constitutionality. He has taught at multiple British universities and produced research reports for several think tanks.
