China's Labor Arbitration Rules Consider AI-Driven Layoffs Illegal

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Dismissal of employees due to their roles being replaced by artificial intelligence is considered unlawful termination, according to a recent case highlighted in the annual labor and personnel dispute arbitration collection released by Beijing’s Municipal Bureau of Human Resources and Social Security.

The ruling emphasizes that while companies may implement AI technologies to boost competitiveness, such actions do not constitute the “significant changes in objective circumstances” required by the Labor Contract Law. These changes must be beyond control and unforeseeable, such as natural disasters, force majeure events, or business shutdowns and relocations prompted by policy shifts.

In a case published on December 26, a tech company shifted to AI-driven automated data collection in 2024. By the end of that year, the company eliminated the department and position of an employee named Liu, who was responsible for manual map data collection, and subsequently dismissed him. An arbitration panel later deemed the dismissal unlawful.

The panel concluded that the company’s adoption of AI was a proactive upgrade rather than an uncontrollable external event, effectively shifting the risks associated with technological advancement onto employees. Instead, employers should focus on negotiating updates to labor contracts, providing skills training, or reassigning employees to different internal roles to better support those impacted.

Legal expert Qi Bin from Shanghai Pacific Legal states that the rapid progress of AI technology creates changes that are difficult for employers and workers to predict when signing employment agreements. Even industry specialists often struggle to foresee the full impact. He noted that resolving such issues legally requires ongoing negotiations and collective cooperation, with evolving laws and improvements to social security systems being essential long-term solutions.

Data from PwC projects that, by 2050, approximately five million jobs for young and middle-aged workers aged 18 to 45 in the United States could disappear.