Managing the Employment Relationship: Singapore's New Implied Term of Mutual Trust and Confidence

The Singapore High Court's recent decision in Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 marks a milestone for employment law in Singapore. The Court definitively affirmed that employment contracts in Singapore include an implied term of mutual trust and confidence, which refers to an obligation requiring employers not to conduct themselves in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence with their employees without reasonable and proper cause.

The Facts in Brief

Mr Mudgal was employed by SAP Asia Pte Ltd as Head of Service Sales for the Ariba line of business in Asia Pacific and Japan. Following workplace tensions and concerns about his management style, documentary evidence showed that SAP's senior leadership had reached agreement on removing Mr Mudgal from his position. Subsequently, SAP placed Mr Mudgal on a 45 day performance improvement plan (PIP), which ultimately resulted in his termination in accordance with his employment contract.

In confirming the existence of the implied term of mutual trust and confidence in Singapore employment contracts, the Court determined that this was breached because documentary evidence suggested the decision to terminate Mr Mudgal had been made before the PIP was even implemented, resulting in the PIP being a “farce”. The Court found that senior management had already decided Mr Mudgal would not demonstrate genuine improvement, and the PIP was executed with "abject shoddiness".

Despite succeeding on the question of breach of the implied term, Mr Mudgal was awarded only nominal damages of S$1,000. His claims for almost S$5 million, including continuing financial loss, pain and suffering from major depressive disorder, and reputational damage, were rejected because he failed to demonstrate the losses were causally connected to the breach.

Implied Duty of Mutual Trust and Confidence

The Court's landmark affirmation of the implied duty of mutual trust and confidence is particularly significant given recent judicial uncertainty. Justice Dedar Singh Gill J found "overwhelming support" for the existence of the implied term in employment contracts under Singapore law. His Honour emphasised the unique relational nature of employment contracts which involve longer-term commitments requiring a high degree of communication, cooperation and mutual trust, as well as the vulnerability of employees arising from the inherent power imbalance in such relationships and the paramount role occupation plays in an individual's sense of identity and self-worth.

The Court also affirmed that a sub-duty of the implied term of mutual trust and confidence included the duty not to behave in an intolerable or wholly unacceptable way.

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 three aspects of the formulation are as follows:

• A High Threshold Requiring Extreme Behaviour. The threshold which the employer's conduct must cross for the test to be satisfied is high, and not every act by the employer which undermines trust and confidence will suffice. The conduct must be calculated and likely to destroy or seriously damage the relationship of trust and confidence. It necessarily takes "quite extreme behaviour" to meet this standard.

  An Objective Assessment. Whether the employer's conduct is such that it destroys or seriously damages trust and confidence must be assessed objectively. This is not about whether the employee subjectively feels mistreated, as the court will examine whether, viewed objectively, the conduct would seriously undermine the employment relationship. This objective standard mitigates unpredictability and addresses employers' concerns that they would otherwise be required to walk on eggshells when managing their employees.

• A Defence of Reasonable and Proper Cause. 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 the employer can demonstrate reasonable and proper cause for acting in that manner. This preserves the employer's ability to justify its actions where it had legitimate and proper reasons for taking the disputed steps.

Practical Implications for Employers

• PIPs Must Be Genuine: For employers, particularly those who regularly use PIPs as part of their management toolkit, they must ensure that when a PIP is implemented, it represents a real opportunity for the employee to address performance deficiencies with retention as a genuine possible outcome. This requires clear expectations, measurable targets and genuine support demonstrating that the PIP is aimed at improvement.

• Documentation and Process Integrity: When implementing a PIP, employers should ensure weekly check-ins are documented, progress is recorded objectively, and the employee is formally notified of outcomes. Employers should avoid internal emails and communications that suggest the outcome is pre-decided. Contemporaneous documentation and a distinction between fact-finding and decision-making can help avoid the appearance of pre-judgment.

• Employers should rely on the express right to terminate employment in accordance with express contractual provisions where appropriate. Where an organisation has genuinely decided that an employment relationship should end, consideration should be given to whether implementing a PIP would be meaningful in the circumstances. Running a disingenuous process creates significant legal risk, and it may be preferable to proceed with direct termination instead.

• Review of Employment Terms: The Court confirmed that parties remain free to modify or exclude the operation of the implied duty through express contractual provisions. Employers may wish to review their existing employment contracts to consider whether express terms addressing the scope of the implied duty would be appropriate.

Conclusion

Prashant Mudgal v SAP Asia Pte Ltd represents the strongest judicial endorsement of the implied duty of mutual trust and confidence in Singapore to date. Whilst Court of Appeal confirmation remains pending, employers should proceed on the basis that this duty forms part of their employment relationships.

The decision does not prevent employers from managing performance firmly, and in fact demonstrates that exercising contractual termination rights would be more appropriate in the appropriate circumstances. However, it does require that performance management processes be conducted genuinely and with procedural integrity. Employers who choose to implement PIPs must treat them as real opportunities for improvement rather than manufactured justifications for predetermined outcomes, and ensure meticulous documentation and record-keeping throughout the process.

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