A court in China just took a stand against the AI layoff epidemic, ruling that companies cannot fire workers merely with the excuse that the technology can perform the job for cheaper than its workforce. Globally, many organizations, both large and small, have reduced their headcount to make room for investments in artificial intelligence. While there has been considerable doubt over whether the technology has truly begun to outperform workers or if these are merely instances of AI washing, the fact remains: businesses are firing workers in favor of technology.
The legality of these AI layoffs hasn’t made it into mainstream discussions, as it is typically seen as an employer’s right to reduce its headcount according to its needs; however, this has had an extremely unpleasant effect on the labor force. Now, exploring the impact of AI layoffs on the labor market in China, it appears the country is moving towards placing greater responsibility on employers to justify the replacement of workers. While laws have not been set on employers replacing jobs with AI, the recent court ruling over the plight of a single employee has far-reaching consequences for employers in the region at large.
Navigating the legality of AI layoffs, a Chinese court just ruled against employers replacing jobs in favor of technology. (Image: Freepik)
A Recent Ruling by a Court in China Gives Us a Closer Look at the Legality of AI Layoffs in the Region
Matters on the AI front came to a head when an employee in China, identified as Zhou, took a stand against the company for firing him over automation gains. Zhou worked as a quality inspector for a firm in the region and was paid 25,000 yuan, or $3,640, per month for his role. Recently, his employer determined that the advancements in AI had reduced the need for his role at the organization.
He was not fired immediately but was instead transferred to another position with a significantly lower salary, now expected to earn only 15,000 yuan, or approximately $2,180, per month. When the employee did not accept the salary adjustment, he was reportedly fired.
The Hangzhou Intermediate People’s Court upheld the decision by a lower court and ruled that cheaper AI solutions were no excuse for layoffs. “The reasons given by the company did not fall under negative circumstances such as business downsizing or operational difficulties, nor did they meet the legal condition that made it ‘impossible to continue the employment contract,‘” the court said in a statement on the case.
The Court also added that the new position offered to the employee was presented with significantly lower pay compared to the original role, which meant that this could not be considered a reasonable negotiation solution. As a result, the layoff was seen as unlawful.
As China Grapples with the Legality of AI Job Cuts, It Has Taken a Step Towards Protecting the Interests of Workers
The court ruling on AI layoffs in China isn’t a result of new laws to protect against such extreme technological impacts on the workforce. Instead, the ruling is based on China’s Labor Contract Laws that define the rights and obligations of both parties to a labor contract, utilizing existing regulations on “major changes in objective circumstances” as the only justification for extreme measures like job cuts.
“The introduction of AI technology by enterprises is a proactive technological innovation implemented to adapt to market competition. While this may lead to adjustments in job structures, it does not necessarily equate to a ‘significant change in objective circumstances’ that renders labor contracts unenforceable,” the Court’s statement further explained. While employers are free to explore technological changes to keep up with the market, the court states that they also have the responsibility of protecting the legitimate rights and interests of their workers.
If changes are necessary as a result of AI, the ruling asks employers to instead prioritize training and upskilling their workers in order to enable them to adapt to higher-level positions that require more human intervention. If there are no options but to reassign workers, employers must still present them with a reasonable plan with reasonable compensation. The court ruling has not deemed automation layoffs as entirely illegal within the country, but the decision is expected to motivate employers to rethink their reorganization plans so as to avoid further brushes with the law.
Despite China’s Push to Promote AI, the Ruling on AI Layoffs Marks a Significant Shift in Its Approach
Much like the US, China has doubled down on its efforts to lead the AI and automation race from right from the front of the pack. The country has succeeded to a large degree, however, considering the size of its population and their dependence on the availability of work within their borders, prioritizing the workforce and protecting their earnings and purchasing power is equally important. We are still in the early days of AI regulation, whether in China or elsewhere, and we’ve yet to see noteworthy regulations on the production and use of the technology.
Some US states have begun to make their own efforts towards regulating some aspects of AI’s effect on employment, but these efforts have been focused largely on the role of AI in hiring. As we see more conversations emerge on the need for laws protecting against AI in replacing jobs, it is up to employers to make their own assessments of the current disbalanced approach to the technology. Planning for long-term workforce stability is just as critical as preparing for the latest advancements in technology, regardless of the presence or absence of laws.
What do you think about the court’s ruling on AI layoffs in China? What are some of the repercussions this ruling could have on employment? Share your thoughts with us in the comments. Subscribe to The HR Digest for more insights on workplace trends, layoffs, and what to expect with the advent of AI.
