The implied term of mutual trust and confidence: Where to set the bar?

Background

The case of Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2021] SGHC 123 is based on a fact pattern which employers will find familiar: an employee (a senior trader with a history of compliance missteps, in this case) is the subject of a complaint from his line manager regarding alleged conflicts of interest and breaches of the company's code of conduct. The employee is suspended on full pay and an internal investigation is carried out. The investigation is inconclusive. The company subsequently exercises its contractual right to terminate the employment with notice.

Additionally, in this case, word of the investigation entered the market and the company received a query about the employee from S&P Global Platts, an influential news source in the energy and commodities markets. The company declined to comment, and Platts went ahead and published an article which stated, erroneously, that an employee of Shell was being investigated for corruption. Platts did not name the employee or his line manager.

The unhappy employee commenced legal proceedings against the company for, amongst other things, alleged breaches of the implied term of mutual trust and confidence.

Issues

It is by now well-established in Singapore jurisprudence that the obligation of mutual trust and confidence is implied by law in employment contracts. An employer therefore must not, without reasonable and proper cause, conduct itself in a manner that is calculated and likely to destroy or seriously damage the relationship of confidence and trust that exists between an employer and its employee.

The issue that arose in this case pertained to the scope of this implied term. The employee argued that the implied term placed a broad and general obligation on the employer not to engage in any conduct that was likely to undermine the trust and confidence required if the employment relationship was to continue in the manner which the employment contract envisaged. The company argued for a more limited approach, where the term should only be implied where the trust-destroying conduct led directly to the wrongful or constructive dismissal in circumstances where the company's conduct was seriously deplorable.

Findings

The High Court was careful to strike a middle ground between these two positions. It held that the crux of the issue was whether the acts in question were objectively likely to destroy or seriously damage the relationship of trust and confidence required for the employment relationship to function. In that analysis, proof of a subjective loss of confidence in the employer was not an essential element of the breach, and the employer's intentions and motives were neither determinative nor relevant. Thus, even if the employer's conduct had such a severe impact on the relationship of trust and confidence, it would not be in breach of the implied term if its conduct was supported by a reasonable and proper cause.

On the facts, although the company had, amongst other things, (a) placed the employee on an extended period of suspension; (b) failed to inform the employee of the investigation outcome (even though it had stated that he would be informed of the outcome); (c) dismissed the employee shortly thereafter (albeit with notice); and (d) did nothing to combat the negative publicity and speculation which arose from the Platts article, the court nevertheless found that there was no breach of the implied term.

Investigations and suspensions

The court accepted that unfairness in the investigation process, and the suspension of an employee without proper and reasonable cause, can amount to a breach of the implied term. There must therefore be a minimum content of fairness required of the employer when suspending and investigating allegations levelled against an employee (i.e. the procedures adopted and the manner of the investigation should not amount to a hatchet job, or be so unfair as to destroy the basis of any expected continuation of the employment relationship).

Beyond that, however, the implied term does not import any further obligations of natural justice or due process (e.g. informing the employee of the outcome, or only suspending the employee in a particular way). This is because the implied term needs to strike a balance between the employer's interest in managing its business as it deems fit, and the employee's interest in not being unfairly or improperly exploited. On the facts, the extended period of suspension was proper and reasonable because the company wanted to leave no stone unturned and needed time to determine its next course of action seeing as the investigation outcome was inconclusive.

(While this issue around suspensions is likely moot in light of the 2019 amendments to the Employment Act (Cap. 91) (EA), which now requires employers to seek the prior approval of the Commissioner for Labour for any suspensions extending beyond one week, the analysis is likely to remain relevant within the context of other steps short of a suspension which an employer may take in the course of an investigation, such as administrative leave or paid leave of absence.)

Informing the employee of the investigation outcome

While the court found that it was understandable for the employee to feel aggrieved, especially as he was expressly told he would be informed of the investigation outcome, the court held that the failure to inform him of the outcome did not amount to a breach of the implied term. In its analysis, the court stressed that the inquiry had to focus on whether the employer's conduct was objectively likely to destroy or seriously damage the relationship of trust and confidence. From an objective perspective, the non-disclosure of the outcome did not disrupt the proper functioning of the employment relationship, disgruntled though the employee may have been.

Moreover, as the company had by then decided to exercise its contractual right to terminate the employment contract, it was not seeking to rely on the investigation outcome and, on that basis, the investigation outcome became irrelevant to its decision.

The employee's personal reputation

While the purpose of the implied term was to facilitate the proper functioning of the employment contract by preserving the employment relationship, the court found that the company did not breach the implied term since the act in question (i.e. the company's silence) was neither corrupt nor dishonest, which were crucial elements that had to be established in order to found a breach.

The court also expressed hesitancy in respect of expanding the scope to import a wider duty to take reasonable care to protect employees from economic or reputation harm. There were several reasons for this:

• a duty to combat misinformation is not typically part of the bargain under the employment contract, and the employer-employee relationship can still work even with untrue rumours about an employee circulating in the market;

• to impose such a duty on the employer (on the basis that the employer is better placed to dispel untruths) would risk opening the floodgates, and an unlimited number of additional duties could be imposed on such a basis consequently; and

• even if such a duty existed, it was overridden by the company's express policy not to comment on personnel matters.

The employee's termination

While it was clear that the company's decision to terminate the employee was influenced in no small part by the investigation (and his previous incidents of misconduct), the court held that those events were ultimately irrelevant as the company was at liberty to exercise its right to terminate the employment relationship in accordance with the express terms of the contract (i.e. by giving notice). In this regard, the court was careful to note that, in line with the established canons of construction, an implied term cannot undermine the express bargain agreed to by the parties. The court therefore cautioned against an interpretation which elevated the implied term to the status of an overriding obligation of trust and confidence, but ultimately left the issue open for another time.

Key takeaways

This case offers timely guidance for employers around the obligation to preserve the mutual trust and confidence which exists in all employment relationships. In particular:

• While the threshold requirement for fairness in internal investigations is low and does not import all the obligations of natural justice, such investigations should nevertheless be carried out in a reasonable and unbiased manner. This would require, e.g., drawing up a clear and appropriate set of terms of reference for the investigation (and adhering strictly to such terms); requiring the investigation team to conduct its own independent and comprehensive fact-finding; outlining the allegations clearly; and allowing the employee fair opportunity to respond.

• A clear policy should be implemented to restrict interactions between the complainant or witness in an investigation with members of the investigation team. Extensive involvement by either of them might provide the basis of a challenge to the impartiality of the investigation or suggest that the investigation was commenced as an orchestrated hatchet job.

• Prior to suspending an employee for the purposes of an investigation, an employer should conduct a preliminary inquiry into the allegations to satisfy itself that there is at least some factual basis for those allegations. This risk is somewhat mitigated now given the requirement to seek prior approval from the Commissioner for Labour but remains relevant insofar as employers may adopt alternative mechanisms such as administrative leave and paid leave of absence instead of formal suspensions.

• While an employer generally has the right to terminate the employment relationship by giving notice, regard must be had to the Tripartite Guidelines on Wrongful Dismissal, which state that a termination with notice may still be considered wrongful if a reason is given that is subsequently proven to be false, or is found to be discriminatory in nature.

Despite the welcome clarity which this case has brought, some issues remain outstanding and will require further consideration. Firstly, in light of the 2019 amendments to the EA (which post-dated the events of this case and were therefore not considered by the court), an employee who is terminated contractually with notice may yet have grounds to allege that such termination is without "just cause or excuse", and therefore wrongful. This interplay between the provisions of s.14 of the EA and the employer's contractual right to terminate has created a hitherto unresolved tension that would benefit from a decision of the Singapore courts. Secondly, while the canons of construction render it unlikely that the implied term of mutual trust and confidence would be elevated to the status of an overriding obligation, it remains to be seen whether this requirement could be imported as an overriding obligation under the "just cause or excuse" requirement under s.14 of the EA.

The employee has appealed the decision of the High Court, so further clarifications on these issues are likely to be handed down in due course.