Cross-Border Catch-Up: Automated Out—How Courts Are Ruling on AI-Driven Dismissals

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Goli Rahimi: Welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. My name is Goli Rahimi, and I’m here with my colleague, Patty Shapiro. We are cross-border attorneys at Ogletree Deakins, and today we’re talking about something that has come up in almost every conversation we’ve had this year, AI, specifically AI-driven workforce reductions. So, for example, what happens when you hear a company say, “We’ve deployed AI; we have these fantastic tools. We no longer need these roles, and we’re going to terminate those employees.” Well, courts around the world, specifically in China, are starting to weigh in, and the answers are quite different depending on where you are.

Patty Shapiro: And this is really timely because the reported numbers are high. Several companies have laid off employees globally so far in 2026, and it’s only June. Citing AI is the reason or one of the reasons. So, this is not a theoretical problem.

Goli Rahimi: Exactly. And as I mentioned earlier, the most significant developments so far have come out of China, and Patty and I have been watching these closely.

Patty Shapiro: There are really three cases to know all that have been decided within the last couple of years, and they all go in favor of the employee. The first is the Zhou case out of Hangzhou. Zhou was a quality assurance supervisor at an AI company. His job was literally to review and verify AI-generated outputs. The company decided its AI had gotten good enough to do his job without him. Rather than terminate him outright, they offered to reassign him to a lower-level role at a pay cut, but he refused, and then they fired him. He filed a claim in arbitration and won. The company appealed twice, but the ruling was upheld each time, and the company had to pay damages.

Goli Rahimi: And the court’s reasoning here is really important. So, Patty, what was the legal basis?

Patty Shapiro: There were two grounds. First, under China’s labor contract law, an employer can only unilaterally terminate based on a major change in objective circumstances that makes it difficult or impossible to perform the contract. The court said that AI adoption is a strategic business decision. The company chose to implement this technology. The court essentially said you cannot transfer the financial risk of your own technological investment onto your employees. The second ground was that even if reassignment had been permissible, the pay cut itself was unreasonable.

Goli Rahimi: And the Hangzhou case doesn’t stand alone. There’s actually a Beijing arbitration from December of 2025 where there was a data collector who had been manually collecting data since 2009. And what the company did is automated his entire function with AI in 2024. And then they terminated him, and they cited that same major change in circumstances argument. And the same result: the arbitration panel found the dismissal was unlawful.

Patty Shapiro: And there’s a third case, a graphic designer in Guangzhou, whose job was replaced by AI programs. The Guangzhou Intermediate People’s Court reached the same conclusion. AI adoption is a business decision, not a legal basis for termination. So, at this point we have a clear line of authority in China. If you are restructuring roles in China because of AI, you may want to consider negotiating a mutual separation.

Goli Rahimi: I think the throughline is this. “AI major job unnecessary” is not a self-executing justification, at least not in China. The legal threshold, the documentation, the process, the consultation, all of that is still going to matter, and courts are going to pay attention to that. And in some places, that might not even save you regardless.

Patty Shapiro: What do you think, Goli? Will employers elsewhere want to start paying attention?

Goli Rahimi: Yes. And it’s really interesting you asked that because it’s not so clear cut all across the world. Spain is a good example of how quickly the picture can look different in very similar circumstances. In Spain in 2025, a regional appellate court there ruled that a dismissal in the translation sector was actually lawful even though it had come about because of AI. So, in that court case, the employer argued that AI had actually materially reduced demand for an employee’s work. And because of that, the company had suffered a sustained decline in revenue, and the court accepted that and found that the termination was lawful. This is the opposite result of China.

Patty Shapiro: But Spain is not simply a green light for employers either. Invoking AI alone is not enough. The employer will want to consider documenting real financial losses, a causal link between the AI adoption and the need to reduce headcount and then still comply with the formal requirements for an objective dismissal, which include advanced notice, a written dismissal letter, and a statutory severance payment. So, there is a workable pathway, but you have to walk it correctly and with strong documentation. And most businesses adopting AI are doing so in hopes of not losing revenue but in gaining profit margins. So, this may be a unique example.

Goli Rahimi: Exactly. And I think the takeaway from all this, and we’re going to see a lot more change in the next three, six, nine months, but the key takeaway for global employers is we’re attorneys. We like to say, “It depends.” There’s no single answer. China and Spain, we just talked about; they looked at really similar fact patterns and similar reasoning for these terminations, and they reached the opposite conclusion. So, we’re really looking at local law still governing local market practices and court opinions still governing and what local legal framework is going to require for these terminations.

Patty Shapiro: Exactly. And this area is moving fast. We expect more countries to weigh in as employers continue to make AI-driven workforce decisions. The cases that have been decided are just the beginning.

Goli Rahimi: Right. And this is a fast-moving area, like you said, and mistakes are real, and it’s important that we keep monitoring these developments and seeing how the legal and the technological landscape are really going to evolve over the next year or so. To all of you, thank you so much for joining us for today’s Cross-Border Catch-Up. Please follow us to stay in the know about cutting-edge employment issues worldwide.

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