Singapore High Court affirms existence of implied term of mutual trust and confidence in employment contracts

Introduction  

The issue of whether Singapore employment contracts contain an implied term of mutual trust and confidence (the “Implied Term”) has long been a matter of academic and judicial debate. Whilst previous court decisions have left the issue open, the General Division of the High Court of Singapore (the “SGHC”) in Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 (“Prashant”) recently held that the Implied Term, which imposes an obligation on an employer not to “conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” without reasonable and proper cause, has sound judicial footing in Singapore.

Background Facts

The claimant, Mr Prashant Mudgal (the “Claimant”), was a former employee of SAP Asia Pte Ltd (the “Defendant”), a Singapore-incorporated subsidiary of a German multinational software company that develops enterprise applications for businesses. The Claimant was Head of Sales for Asia Pacific and led a team responsible for selling the Defendant’s software services to customers.

During the Claimant’s tenure with the Defendant, tensions and conflict arose between the Claimant and his colleagues, which resulted in a series of contentious email exchanges and workplace incidents. The Claimant clashed with the Head of Delivery Services over what he called the “incompetence of the Services Delivery team”. According to the Head of Delivery Services, the Claimant’s “unnecessarily aggressive and divisive” emails led her to lodge a complaint with their respective supervisors to correct his behaviour, which was allegedly unbecoming of a senior regional leader. In subsequent emails between the Claimant’s direct supervisor and the Human Resources Business Partner, the former shared her concern on the deteriorating professionalism of the Claimant and indicated the senior management’s “alignment” to remove the Claimant from his position. She also cited his obstinate refusal to apologise to the Head of Delivery Services and his colleagues for his use of hostile language and personal attacks in emails.

As such, the Claimant’s supervisor and Human Resources Business Partner initiated a 45-day Performance Improvement Plan (“PIP”) that outlined five key improvement areas, amongst which included respectful communications, leadership behaviour, effective team management and improvement of the relationship with the Delivery team.

A few months later, the Claimant’s supervisor and Human Resources Business Partner served a notice of termination on the Claimant in accordance with the Claimant’s employment agreement (the “Employment Agreement”), citing the Claimant’s “abrasive and confrontational” management style, hostility and inability to work professionally with people.

The Claimant alleged, among other things, that he was targeted in a conspiracy in a “pre-ordained HR process” that was never legitimately introduced to give him a fair opportunity for his long-term correction. He further argued that the PIP was a mere “charade” instituted against him with the “end game of terminating his employment”. The Claimant argued that he was not assessed at all during the PIP, that the Defendant’s senior leadership decided he failed the PIP before it ended, and manufactured incidents to harass him post-PIP.

The Claimant further argued that the Defendant breached two implied terms in relation to the Employment Agreement, namely, the Implied Term, and the implied term not to engage in a termination process that is arbitrary, capricious, perverse, irrational and/or in bad faith.

The Court’s Findings

The SGHC noted that the Singapore courts have not consistently recognised whether the Implied Term has proper footing in Singapore law. After a comprehensive review of both local and overseas authorities, the SGHC found that the Implied Term does, in fact, exist in Singapore law—a decision shaped by precedent, principle and policy.

To begin, having reviewed previous High Court decisions, the SGHC found that there was ample local precedent implicitly recognising that the Implied Term existed and continues to exist in Singapore. The SGHC also held that the Implied Term was justified as a matter of principle. The SGHC carefully considered arguments for and against recognising the Implied Term in Singapore, and found that, although the genesis of the Implied Term may be found in legislation in the United Kingdom and despite resistance in recognising Implied Terms in law in Australia, that considerations of fairness and policy were central towards the implication of terms in law in Singapore.

The SGHC gave two reasons for its conclusions:

1. First, employment contracts have a unique relational nature that involves a longer-term relationship between the parties in which they make a substantial commitment. Employment contracts usually require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty, which may not be in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangement.
2. Second, and more specifically, an employment relationship can also be characterised by the power imbalance between the employer and employee, both at the stage in which the employment contract is entered into and when the contract is being performed. The SGHC found that this power imbalance, coupled with the paramount role which a person’s occupation plays in his sense of identity and self-worth, makes employees especially vulnerable vis-à-vis their employers.

The SGHC also recognised that protecting vulnerable employees cannot be fulfilled only by the legislature and that the courts should retain some flexibility to step in and rectify such wrongs in appropriate cases.

The Test for the Implied Term in Singapore

The guiding test for applying the Implied Term is that an employer must not “without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”.

The SGHC emphasised three aspects of the legal test:

1. First, the threshold which the employer’s conduct must cross for the test to be satisfied is a high one, in that it must be calculated and likely to destroy or seriously damage the relationship of trust and confidence between the employer and employee. It would necessarily take “quite extreme behaviour” as it is not the case that any act of the employer which undermines trust and confidence will suffice.
2. Second, whether the employer’s conduct is such that it destroys or seriously damages trust and confidence is a question that must be assessed objectively. This would mitigate any unpredictability which may be inherent in the Implied Term and manage employers’ concerns that they will be required to walk on eggshells when managing their employees.
3. Third, even if an employer acts in a way that is calculated and likely to seriously damage or destroy trust and confidence, there is no breach of the Implied Term if there is reasonable and proper cause for the employer to act in that manner. Hence, an employer will still be afforded the opportunity to justify its actions if it had legitimate and proper reasons for taking the actions in dispute.

Application to the Facts

The SGHC agreed with the Claimant that senior management already made up their minds that “the Claimant would not be able to demonstrate genuine improvement in his performance” and that they executed the PIP with “abject shoddiness”.

Importantly, the SGHC reiterated that it was not wrongful for the Defendant to terminate the Claimant’s employment in accordance with the terms of the Employment Agreement as this was its contractual right exercisable at any point of time. However, the precise nub of the issue was the Defendant’s problematic conduct before the termination of the Claimant’s employment. This included, amongst others:

1. Engineering the PIP as a vehicle for removal: Documentary evidence suggested a collective intent amongst management for the Claimant to be removed from the Defendant’s employ as soon as possible, which persisted “even when the PIP was being contemplated”. The PIP was pre-ordained and proposed with the end‑goal of terminating employment, in departure from the Defendant’s own PIP policy, rather than as a genuine opportunity to improve. The SGHC noted in particular the Claimant’s supervisor’s comments (to other management level personnel) that she wanted to terminate the Claimant’s employment as soon as possible, even before the PIP was due to end and despite the Claimant’s recent improvement in his performance.
2. Failure to fairly evaluate performance: Key decision‑makers failed to account for improvements during the PIP. The SGHC noted that both the Human Resources Business Partner and the Claimant’s colleagues agreed that the Claimant was doing his best to follow the terms of reference that were given to him in the PIP. However, the Claimant’s supervisor was adamant that the Claimant was merely “faking his improved performance” and had clearly already made up her mind that the Claimant would not be able to demonstrate genuine improvement in his performance. It was further observed by the SGHC that the Claimant’s supervisor’s conclusion was “obviously coloured by [the Head of Delivery Services’] prejudiced mind.”
3. Process defects and poor record‑keeping: The PIP was carried out with “abject shoddiness”, including shoddy documentation and failure to inform the Claimant of the PIP outcome. In this regard, the Claimant’s supervisor did not provide any documentation of her weekly meetings/calls with the Claimant and could not provide any specificity on the Claimant’s performance or progress during the PIP.

The SGHC noted that, having chosen to place the Claimant on the PIP, it was not open to the Defendant to “lead him on like a lamb to slaughter on the false pretext that he was being given a genuine opportunity to improve.” The SGHC therefore held that the totality of the Defendant’s conduct, on any objective view, was calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee, and that the Defendant had breached the Implied Term.

That said, the SGHC rejected the Claimant’s claim of almost SGD 5 million in damages. This was because the Claimant failed to demonstrate that the sums pleaded were causally connected to the Defendant’s breaches. The SGHC therefore rejected the Claimant’s allegations of “continuing financial loss”, “pain and suffering caused by his major depressive disorder” and “injury to his reputation” and instead awarded the Claimant nominal damages in the sum of SGD 1,000.

Key Takeaways

This decision represents a significant turning point for the duties and responsibilities of employers and employees in Singapore. A few observations may be made.

Employers should take special care to avoid conduct or statements that may be construed as a breach of the Implied Term. When placing an employee on a PIP, employers should refrain from:

1. Placing employees on a PIP without intending for the plan to be a genuine opportunity for the employee to improve;
2. Making statements/comments that demonstrates the employer’s intent to dismiss the employee, irrespective of the progress/outcome of the PIP;
3. Conducting a PIP with severe procedural flaws such as failing to keep proper documentation of weekly check-ins or failing to document the employee’s progress during the PIP; and
4. Deliberately refusing to acknowledge the employee’s improvement in their performance during the PIP without valid basis or reason.

Whilst the above examples are in the context of PIPs, Prashant’s recognition of the Implied Term means that the categories are not closed in respect of what may constitute a breach of the Implied Term in Singapore.

Employees now have stronger legal recourse than before in situations where their employer behaves in a manner that may undermine the trust underlying employment relationships. The SGHC also outlined some advice for potential future claimants, in that it would be prudent for future employee-claimants to specify the precise content of the Implied Term on the facts of their case and to explain the basis of the same.

It is noteworthy that the Claimant in Prashant was only awarded nominal damages despite the SGHC’s finding that his ex-employer has breached the Implied Term. It remains to be seen how a breach of the Implied Term may give rise to recoverable damages more broadly in Singapore, given that the Claimant’s success in Prashant was, in reality and the words of the SGHC, only a “pyrrhic victory”.

From a practical standpoint, the SGHC noted that parties remained free to modify or exclude the operation of Implied Terms by incorporating express provisions to that effect in the employment contract. Employers may therefore wish to review their existing employment contracts with a view to limiting the scope of the Implied Term.

The decision in Prashant represents a significant development in Singapore employment law as the first Singapore court decision to affirmatively find that an implied term of mutual trust and confidence exists in employment contracts here, opening the door for future claims premised on a similar basis to arise.

*The authors would like to thank Nikki Ang, trainee solicitor at CMS Holborn Asia, for her contribution to the publication of this article.