Debates (and threats) about the impact of AI on the labor market are increasingly present and cut across more and more sectors. One of the doubts many people have is that adopting AI can be a valid reason to justify an ERE that ends dozens of jobs at once. The Social Chamber of the Superior Court of Justice in Madrid has just resolved this in a ruling that leaves many doors open.
The TSJ of Madrid’s ruling on an ERE applied to a video game development studio first addressed AI implementation as a rationale for dismissing some of its workers, although that decision contained important nuances.
What really happened? TSJM’s Ruling 864/2026, dated October 8, disposed of an appeal by a screenwriter who considered that his dismissal (in the framework of an ERE) was null and void. A court of inquiry had previously declared the dismissal unfair and sought annulment and moral damages. His dismissal letter did not mention AI as a reason justifying his dismissal.
On the other hand, a 3D graphics modeler who worked in the same studio and was subject to the same ERE, received a dismissal letter that mentioned AI, but the court of inquiry had already declared his dismissal appropriate. The TSJ in Madrid did not examine this latest dismissal, which was not appealed and closed as appropriate. That is, in this second case, the judiciary saw the implementation of AI as a justification for firing the employee because the production models were changing and it reduced the number of employees the company needed.
Citing the letter AI. Modeler’s dismissal letter noted that AI improved visual quality and “allowed us to be more agile and efficient.” This is why two senior 3D artists have had enough and their positions have disappeared. The company has alleged economic, technical, productive and organizational factors, but the letter is primarily based on economic and productive factors. Not in tactics that put the request on the verge of being considered unacceptable.
Article 51 of the Labor Code, which regulates the grounds for collective dismissal, identifies an important distinction between grounds. Strategy touches upon the means of production, the organization of a work method, and the demand for a productive product. Fitting AI is controversial, as the 3D modeler’s dismissal letter called for “changes in work methods”. That is, a productive factor, not a new tool in itself, would be a technological factor. Indeed, labor inspection has taken economic, organizational and productive reasons.
Bankruptcy and Change of Order. The company justified this priority very well due to economic, organizational and productivity reasons and did not present the use of AI as a direct cause, but as a result imposed by its clients.
The company was in a difficult economic situation and lost 3,546,027 euros in 2024 from a revenue of 646,297 euros in 2023. Its turnover fell from 7.99 to 4.60 million Indeed, in October 2024, it declared its bankruptcy in a Madrid court and, as a result, filed an ERE that affected 13 of its 83 workers.
The judgment states that the company alleged that: “The use of images generated by artificial intelligence has a double effect. On the one hand, it improves the visual quality of our products and, with it, the evaluation by users, and on the other hand, it allows us to be more agile and efficient since much less investment is required from visual to actualization time. New production processes based on the use of artificial intelligence (AI) are required.” That is, it is not the use of AI that causes layoffs, but changes in production processes aimed at making the company economically viable. Even if it means using AI.
AI does not support dismissal by itself. The nuance that TSJM introduces is important, as it contextualizes the role of AI in determining the reasons for dismissal and does not link its presence to the unacceptability or non-acceptance of dismissals, but rather to the reasons for their implementation.
A ruling by the Court of Instance of Bilbao declared the dismissal of an employee whose position was replaced by an AI, inadmissible without other economic or organizational reasons. That is, simply replacing employees with AI can cost companies too much, unless the reason for the layoffs is not a direct replacement by AI, but rather a complete change in the production model or the need to change the model for economic reasons.
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Picture | Pexels (Zayed Hussain)
