A court in China has ruled it illegal for a company to terminate an employee on the grounds that an artificial intelligence replacement would be cheaper, affirming limits on AI-driven job displacement amid a wave of anxiety over the technology’s potential to fuel unemployment.

A 35-year-old worker surnamed Zhou who oversaw AI-generated responses at a fintech firm in Hangzhou, capital of east China’s Zhejiang province, was fired after refusing a demotion and pay cut. The company told him his role could be replaced by AI.

“We don’t believe AI technology has reached the point where it can substantially replace human workers,” said Shi Guoqiang, a judge with the Hangzhou Intermediate People’s Court, in an interview with state broadcaster CCTV.

Zhou filed for labour arbitration and won at every stage – from arbitration to trial and appeal. Courts ruled that the company had illegally terminated his contract and ordered the firm to pay Zhou over 260,000 yuan (US$38,067) in compensation, according to a recent CCTV report.

The court found that replacing a worker on cost grounds did not constitute a “material change in objective circumstances” that justified terminating a labour contract, a legal standard typically applied in situations such as mergers and acquisitions.

The Guangzhou Intermediate People’s Court reached the same conclusion in 2024, ruling that a graphic designer’s AI replacement did not qualify as a change in “objective circumstances”, according to CCTV.