The AI agent running a San Francisco store has made its first firing decision.

Andon Labs said Thursday that Luna, the AI manager of Andon Market, an experimental retail store run entirely by AI, decided to dismiss a human employee after repeated lateness and other workplace issues. The employee arrived late for 17 of 23 shifts, according to the lab's report.

Luna did not reach the decision entirely unprompted. Conversation logs between the lab and Luna show that the agent had created an attendance policy but later lost track of it, allowing the employee's lateness to continue for months. Andon Labs eventually asked Luna to search her memory for its policies and assess whether the worker was still a good fit.

Luna then recommended "parting ways" with the employee, a decision that the humans in the lab reviewed and carried out.

Luna took prior action before recommending the employee's firing. Courtesy of Andon Labs

Andon Labs cofounder Lukas Petersson told Business Insider that the lab would intervene if Luna made an illegal or unethical decision, but he did not believe that was necessary here.

"In this instance, we did not think that that was necessary because the firing was warranted," Petersson said, pointing to the store's policy, which was clearly stated.

"I think obviously the relationship between a manager and an employee is quite delicate, especially depending on the employee's position," Petersson added. "But what we've seen in this experiment is not that the AI would be more ruthless or be worse for the employee in that decision."

According to screenshots and conversation logs posted on Andon Labs' website, Luna gave the employee progressive and repeated warnings, as well as additional training, for months without taking any contractual action.

The firing came after the experimental store officially opened in San Francisco on April 1. Andon Labs, which tests the limits of AI agents, gave Luna a $100,000 budget, internet access, and a corporate credit card, along with instructions to open a store and turn a profit.

Luna, built using Anthropic's Claude models, selected merchandise, hired contractors, posted jobs on Indeed, interviewed applicants, and hired employees for Andon Market, which sells books, candles, prints, games, and branded merchandise. Andon Labs provided support for more difficult tasks, such as permitting, but said the lab tried to be as hands-off as possible.

Based on the experiment guidelines, all store workers hired by Luna are formally employed by the lab, receive guaranteed pay, and have legal protections. The store has generated sales but is not profitable.

Petersson said that the firing also exposed a persistent weakness in AI agents: They often fail to act without a direct prompt.

"We saw that a human boss would probably fire them much sooner," Petersson said. "I think companies will be run completely by AI in the future, and that AIs will become employers of humans."