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Singapore High Court affirms implied duty of mutual trust and confidence in employment contracts
- ASEAN Newsflash - Q3 2026
- Key findings of the decision
- Practical considerations for employers
The Singapore High Court has affirmed that employment contracts under Singapore law contain an implied duty of mutual trust and confidence between employers and employees. The decision in Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 highlights the importance of fair and genuine employee management processes.
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Key findings of the decision
The court held that employers and employees must not, without reasonable and proper cause, act in a manner likely to destroy or seriously damage the relationship of trust and confidence between them. This represents an important development in Singapore employment law, following previous uncertainty and differing views in the Singapore courts. While the High Court has now recognized the implied duty of mutual trust and confidence, the issue has not yet been definitively resolved by the Singapore Court of Appeal
The court also confirmed that the implied duty must not contradict any express terms of the employment agreement and may be modified or excluded through clear contractual wording.
In this case, SAP was found to have breached the implied duty of mutual trust and confidence by placing Mr Mudgal on a performance improvement plan (PIP) without intending to provide him with a genuine opportunity for improvement as it had already been decided that his employment would be terminated. In addition, the PIP was not properly implemented. The court clarified that the problem was not the termination itself, but rather SAP’s conduct before the termination which breached the implied duty.
Practical considerations for employers
The decision does not affect an employer’s right to terminate employment in accordance with the terms of the employment agreement. The court noted that SAP could have relied on the express termination provision in Mr Mudgal’s employment agreement, rather than implementing a PIP process without a genuine intention to provide an opportunity for improvement.
Where employers implement PIPs, they should ensure that these are conducted genuinely, objectively and with proper documentation, and that employees are given a meaningful opportunity to address performance concerns.
Pending any further guidance from the Court of Appeal, employers in Singapore should take note of the High Court’s recognition of mutual trust and confidence as an implied term in employment contracts and review their HR practices and performance management procedures accordingly.