Global: Is AI really driving Layoffs?

Worldwide lay-offs rose significantly in 2025, and the trend appears to be continuing in 2026. Many employers describe these reductions in force as AI-led strategies that are necessary to transform their business models.

However, studies in Australia, Germany, the UK and the US suggest that, for 90% of employers, AI has not yet materially affected employment levels over the past three years.

The Question: Is AI really to blame?

If AI has, so far, had only a relatively limited effect on employment levels, why is it such a common justification for layoffs? Is it becoming a convenient scapegoat, and are there risks associated with relying on that explanation?

The global layoffs trend may be driven by a range of factors other than AI, including economic uncertainty, the business cycle, interest rates and tariffs, all of which can weaken demand and increase pressure to cut costs.

Over-hiring by tech companies during and after COVID may also be contributing to the trend.

Companies that need to retrench for other reasons, or a combination of factors, may nevertheless prefer to present AI as a blame-free explanation that makes them appear stronger, more progressive and future-focused.

Are there risks involved with approach?

There are signs that employment courts and tribunals are responding more sceptically to AI-based justifications for redundancy.

The rules governing fair redundancy dismissals vary across jurisdictions, and employers need to understand local rules and practices before starting a reduction in force.

Relying on AI as the default explanation may no longer be as straightforward as it appeared to be last year.

Firing and Re-hiring

The flip side of the redundancy trend may be the signs that many of the large companies that undertook significant redundancy programmes in 2025/26 are planning to re-hire into similar roles in 2027. Some companies are acknowledging that AI-led redundancy programmes have had a greater impact on service quality than expected.

Leaving aside the financial cost of re-hiring into a role that was recently made redundant, some countries will require employers to show that the original redundancy was genuine at the time and that a material change in business circumstances after the dismissal created the need to recruit again. Failing that test could result in unfair dismissal claims.

Employers will therefore need a clear and documented audit trail to justify their decisions at each stage.

This is a high-level general update only. Legal advice should be obtained on specific circumstances.