Can employers use AI replacement to bypass labour protections?

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Employers cannot use AI replacement as a shortcut to bypass labour protections during retrenchment.
The rise of AI tools does not automatically justify retrenchment, and employers still have to meet the ordinary legal principles that govern retrenchment. Employers must show genuine redundancy linked to restructuring and select affected employees using fair and objective criteria, rather than relying on AI replacement alone.
Courts have rejected AI replacement as a bypass for labour rules in other countries
In China, a court in Hangzhou reportedly awarded compensation to a quality assurance supervisor dismissed after refusing a demotion and salary reduction following the introduction of AI systems. The court held that employers cannot rely on AI replacement as a shortcut to bypass labour protections. In Italy, the Genoa Labour Court reportedly found an AI-driven dismissal unlawful because the employer failed to consider redeployment to another suitable role before termination.
Retraining, upskilling, or redeployment must be considered before retrenchment
AI adoption may explain a commercial rationale for restructuring, but retrenchment still depends on whether roles are genuinely redundant. Before resorting to retrenchment, employers are expected to consider whether affected employees can be reskilled, upskilled, or redeployed within the organisation. Retrenchment should only be considered where roles remain genuinely redundant after reasonable efforts to reskill, upskill, or redeploy.
Malaysia’s retrenchment selection must be clear, transparent and objective
In Malaysia, the Code of Conduct for Industrial Harmony requires that the selection of employees for retrenchment be conducted in a clear, transparent, and objective manner. It also notes that traditional factors such as length of service, age, and family circumstances remain relevant, but should not be applied rigidly. Courts are directed to place greater emphasis on employees’ skills, adaptability, and ability to work alongside technology rather than treating AI-driven restructuring as a sole basis for job loss.
AI-driven workforce decisions still have to preserve fairness
The risk with AI is that roles may be analysed and redundancy decisions may be made in ways employees do not fully understand. That is why employers must carry out any retrenchment measures responsibly, transparently, and fairly, even when AI systems are involved. There is also a call to revisit legal protections, particularly retrenchment benefits, so employees across income levels are safeguarded in an AI-driven workplace.

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Can employers use AI replacement to bypass labour protections?

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