Singapore recognises the implied term of mutual trust and confidence

In Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15, the Singapore High Court confirmed that the implied term of mutual trust and confidence exists in employment contracts. It was breached on these facts: the employer had the contractual right to terminate with notice at any time but instead ran a performance improvement plan with a pre-ordained outcome. The Court called it a "farce".

Background

Mr Mudgal had issues working with his colleagues. Eventually, he was seen sending emails to one team leader accusing her of having "an axe to pick" with his team member, attacking her team's India head for "gross incompetence", and telling her he had no faith in her "ability to be able to stand behind [her] own people". He drew battle lines: "you handle your piece, I handle mine". When asked to apologised, he refused.

Senior management decided they wanted to remove Mr Mudgal. In March 2019, they placed him on a 45-day performance improvement plan ("PIP"). The PIP ended in May, with management convinced Mr Mudgal was only "simulating his behaviour". Management maintained its course – Mr Mudgal's employment was terminated with notice before year-end. He sued for nearly SGD 5 million in damages.

Decision

The Court confirmed that the implied term of mutual trust and confidence exists in Singapore employment contracts. This was breached – not because Mr Mudgal was terminated, but because, contrary to appearances, the PIP gave Mr Mudgal no real chance to improve; his dismissal was already "pre-ordained" and he was led "like a lamb to slaughter".

Internal emails were telling. They showed an intent to part ways with Mr Mudgal that persisted throughout. Before the PIP, there was "full alignment on removing" Mr Mudgal, with an intent to "expedite". During the PIP, his manager wrote: "we would like to remove him from the business as soon as possible". The Court described the documentation as "shoddy": no documented check-ins, no documented evaluations, and no formal outcome. Some five months later in October 2019, Mr Mudgal's manager wrote: "it's time to remove [Mr Mudgal]".

However, Mr Mudgal could not prove that this breach caused any damages. His employer always had the contractual right to bring his employment to an end. Mr Mudgal walked away with only SGD 1,000 in nominal damages.

Implications

• The implied term of mutual trust and confidence now exists. Employers must not, without reasonable and proper cause, conduct themselves in a manner calculated to destroy or seriously damage the employment relationship. This includes a duty not to behave intolerably or wholly unacceptably toward employees.
• Farcical PIPs create liability that direct termination could avoid. PIPs must be genuinely aimed at improvement, not predetermined paths to termination. If termination is inevitable, employers should consider relying directly on contractual termination provisions. Pre-ordained processes can create unnecessary liability that straightforward terminations could avoid.
• Documentation remains key. If a process is to be seen as genuine, it should be demonstrably so. Examples of documentation include meeting minutes, written evaluations, and a reasoned decision – such records may ultimately be presented to the Court and scrutinised.
• Proving substantive damages remains a challenge. The normal measure of damages in wrongful dismissal cases (outside of the Employment Claims Tribunals ("ECT") context; see below) remains the amount an employee would have received had the employer lawfully terminated the contract by giving notice or paying salary in lieu. Mr Mudgal's nominal award reflects that he could have been terminated contractually anyway.
• Contractual termination remains acceptable. An employer's contractual right to terminate at any time and for any reason still remains largely unfettered. However, regard should still be had to the implied term of mutual trust and confidence especially in the process leading up to termination.
• A different regime applies at the Tribunals. This decision appears to cement the divide between the Court and the ECT regimes. Employers should continue to note that at the ECT, wrongful dismissal can be established even if termination is ostensibly based on contractual rights. Compensation (although capped) can also extend beyond notice pay to loss of income and harm caused by how the dismissal had occurred.

Concluding remarks

While Singapore remains a relatively employer-friendly jurisdiction, the equilibrium is shifting. In the year ahead, we expect to see restrictive covenants facing tighter scrutiny, retrenchments continuing to draw regulatory attention, and a strong anti-discrimination movement as the nation moves toward implementing the Workplace Fairness Act 2025.

Confirming that the implied term of mutual trust and confidence exists is consistent with this trend. The decision signals that if termination is inevitable, an honest, direct exercise of contractual termination rights is preferable over an engineered, pre-determined PIP (or other process).