How Does China's Ban on AI Layoffs Impact HR in the US & EU?

China has seen a major win for labour rights, as the Hangzhou Intermediate People’s Court has ruled that employers can not use AI as an excuse to fire workers. 

The case centred around an employee with the surname “Zhou,” who was a quality assurance supervisor for a large tech company in Hangzhou, Zhejiang province – a hub for AI.

Zhou was first hired by the tech business in 2022 to oversee the company’s AI output. In 2025, executives tried to replace him with a large language model (LLM), offering a demotion with a 40% pay cut from his 300,000 yuan (US$43,900) salary.

Zhou contested the severance offer through a government arbitration panel after he refused the initial proposal. This caused the company to end his contract, citing the cause as a reduced need for staff due to the disruptive impact AI had on the role.

At a time when China’s central leadership is championing the widespread adoption of AI, legal scholars hail this decision as a reassuring signal for the protection of labour rights.

The court ruled: “The termination grounds cited by the company didn’t 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,’” according to NPR.

Why is the ruling important for HR leaders in the US?

There is no federal protection against being replaced by AI in the US, except for Montana, where employment operates on an at-will basis. 

This allows businesses to terminate workers for any reason not specifically outlawed by statute. Yet replacing humans with AI is not listed as a prohibited reason for firing employees. 

This being said, although a Senate bill was introduced to track AI-related layoffs through quarterly Department of Labour reports, it has not received the momentum needed to pass the current Congress.

What’s more, the US tends to focus on state-level efforts. For example, in Illinois and Colorado, the primary focus for AI is to increase transparency and to better manage risk.

In Illinois, the state requires notification when AI is used in personnel decisions, and Colorado’s 2026 AI Act mandates annual impact assessments, which will take place mid-2026. 

However, neither Colorado nor Illinois has adopted a similar legal principle to China, that AI cannot replace human workers, causing grounds for termination.

How does the ruling impact European businesses?

In Europe, there is a similar story.

The European Union's AI Act requires businesses to label when AI has been used for hiring, performance reviews and discharge as “high-risk.” 

As a result, these systems must adhere to strict human oversight and worker notification requirements by August 2026. However, this legislation focuses on how AI is used and regulated, rather than whether it can be used to replace human roles.

When the legislation was first introduced, Paul Cardno, Global Digital Automation & Innovation Senior Manager at 3M said: “With nearly 80% of UK adults now believing AI needs to be heavily regulated, the introduction of the EU’s AI Act is something that businesses have been long waiting for.”

Although the EU has had proposals from labour unions for a European AI Social Compact to support displaced workers, no protections have been passed. 

Paul added: “While the EU Act isn't perfect, and needs to be assessed in relation to other global regulations, having a clear framework and guidance on AI from one of the world's major economies will help encourage those who remain on the fence to tap into the AI revolution.”