The court decided that a tech firm in eastern China had illegally fired one of its workers after he refused to take a demotion when his job was automated by AI, according to a statement published by the Hangzhou Intermediate People’s Court. 

“The termination grounds cited by the company did not 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,’” the court said in the article dated April 28.

Companies cannot unilaterally lay off employees or cut salaries due to technological progress, the court said in a separate statement, citing the same case.

The ruling comes as Chinese companies race to implement AI systems as part of a state-directed push to dominate the new technology. At the same time, planners in the Chinese Communist Party have indicated a willingness to prioritize stability in the labor market as the country reckons with a slowing economy and elevated youth unemployment.

Read more: China Must Prevent Mass Job Cuts From AI, Policy Adviser Says

The employee at the center of the case, a quality assurance professional at a tech company identified only as Zhou, had been responsible for checking the accuracy of outputs by large language models, according to the filing. When an AI system took over his job, he was demoted and forced to take a 40% pay cut.

When Zhou refused the reassignment, the company terminated him, pointing to reductions in staffing due to AI. The case went to arbitration and then the Chinese court system, which supported a compensation package. 

The ruling builds on a precedent set by another Chinese court in December, which found that AI implementation did not meet the necessary legal standard for a mapping company to terminate one of its employees’ contracts.