On 26 December 2025, the Beijing Municipal Human Resources and Social Security Bureau published the “Top Ten Typical Labour and Personnel Dispute Arbitration Cases in Beijing for 2025” on its official website. One of these cases concerns an employer's dismissal of an employee due to job replacement by AI and provides important guidance for current practice. The key points of this case are summarized below for reference only.
Case Summary
An employee commenced employment with an employer on 1 July 2009 as a data collector, responsible for traditional manual map data collection.
In early 2024, to address market shifts and technological advancements, the employer decided to transition its operations, shifting all traditional manual collection to AI-driven automated data collection. Consequently, the employee's department (i.e., Navigation Products) and his position were abolished.
By late 2024, the employer issued a written notice unilaterally terminating the labour contract, citing “significant changes in the objective circumstances upon which the labour contract was based, rendering its continued performance impossible, and failure to reach agreement on contract amendments.” (i.e., Article 40(3) of the Chinese Labour Contract Law)
The employee subsequently filed for labour arbitration, seeking a ruling that the termination was unlawful and demanding compensation for unlawful termination (i.e., double the statutory severance pay).
The competent arbitration committee ruled in favour of the employee's claims. The employer contested this ruling and initiated court proceedings. The court of first instance issued a judgment consistent with the arbitral award. Subsequently, the employer appealed, but the appellate court upheld the judgment of the court of first instance.
Case Analysis
The focal points of this case concern:
- whether the employer's abolition of the position due to AI implementation constitutes a “significant change in the objective circumstances upon which the labour contract was based” as stipulated in Article 40(3) of the Chinese Labour Contract Law, and
- whether the employer lawfully negotiated and was unable to reach an agreement with the employee regarding contract amendments prior to its unilateral termination.
Pursuant to Article 79 of the “Interpretations on the Trial of Labour Dispute Cases (I)” jointly issued by the Beijing High People's Court and the Beijing Labour and Personnel Dispute Arbitration Commission on 30 April 2024, “[a] significant change in the objective circumstances on which the labour contract was based” refers to unforeseeable changes occurring after the contract's conclusion that render all or principal contract terms unfulfillable, or where continued performance would entail disproportionate costs or manifest unfairness, thereby undermining the contract's purpose. The following circumstances generally constitute “significant changes in the objective circumstances upon which the labour contract was based”:
- force majeure arising from natural disasters such as earthquakes, fires, or floods;
- major changes (including employer relocation, asset transfer, or cessation of production, conversion of production, or restructuring) necessitated by alterations in laws, regulations, or policies;
- changes in the scope of operations of employers operating under a franchise model.
The common essence of these circumstances lies in their “force majeure” and “unpredictable” nature, meaning they fall beyond the scope of the employer's routine operational decision-making and business risk control.
Specifically in the present case, according to the arbitral tribunal and courts, the introduction of AI technology by the employer falls entirely within the scope of its autonomous business decisions. It represents technological innovation, strategic adjustments, and operational adaptations proactively implemented by the employer as a market participant to adapt to market changes and technological advancements. Such transformation and upgrading, based on sound commercial judgement, may entail adjustments to the job structure. However, these adjustments fall within the scope of risks that the employer should reasonably foresee during normal business operations. They do not constitute a “significant change in the objective circumstances on which the labour contract was based” as defined by the relevant legal provisions due to the lack of force majeure element and unforeseeability required for “objective circumstances”. An employer's termination of a labour contract on the grounds that the relevant position has been replaced by AI essentially shifts the normal risks of technological iteration – which are foreseeable and should be borne by the employer – solely onto the employee.
Furthermore, the employer failed to provide sufficient evidence demonstrating that, following adjustments to the company's relevant operations and organisational structure, it had engaged in consultation with the employee regarding amendments to his labour contract but was unable to reach an agreement.
Consequently, its unilateral termination of the labour contract on this basis contravenes legal provisions and constitutes an unlawful termination. The employer must therefore pay the employee compensation for unlawful termination of the labour contract.
Key Takeaways
Against the backdrop of rapid advancements in AI technology, employers increasingly optimise business processes, enhance operational efficiency, and adapt to market competition through technological upgrades. However, job adjustments stemming from technological substitution fundamentally fall within the scope of proactive business decisions rather than unavoidable, unforeseeable objective circumstances. Therefore, priority should be given to appropriately accommodating affected employees through means such as negotiating contract amendments, providing skills training, or facilitating internal redeployment.
Where termination of labour contracts is genuinely necessary to achieve cost reduction and efficiency gains, strict adherence to the relevant provisions of the Chinese Labour Contract Law is required. For instance, Article 36 of the Chinese Labour Contract Law allows termination by mutual agreement, and its Article 41 provides for redundancies arising from corporate restructuring, major technological innovation, adjustments to business operations, or significant changes in the objective economic circumstances upon which the labour contract was originally based. Simplistically invoking “significant changes in objective circumstances” as the ground for termination (and without prior consultation with employees on contract amendments) should be avoided.
