In a landmark ruling, the High Court in Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 has definitively affirmed that the implied duty of mutual trust and confidence exists in employment contracts under Singapore law, despite recent decisions where the High Court ruled to the contrary. The High Court also notably held that placing an employee on a performance improvement plan without a genuine opportunity to improve would be a clear breach of the implied duty.
The facts
Mr Prashant Mudgal was Head of Services Sales at SAP Asia. His working relationship with the Head of Services Delivery was deeply strained, leading to a series of hostile email exchanges. His supervisors considered his conduct unprofessional. After he refused to apologise to his colleague, senior management aligned internally on removing him. A 45-day Performance Improvement Plan ("PIP") was put in place in March 2019. His employment was terminated in November 2019.
Mr Mudgal sued SAP Asia, claiming nearly $5 million in damages. He argued the PIP was a sham designed to justify a dismissal that had already been decided The Claimant claimed three substantive heads of losses suffered: (1) loss of future earnings; (2) damages for pain and suffering and (3) injury to reputation and pride.
The Central Legal Question
Does Singapore employment law include an implied term of mutual trust and confidence, an unwritten rule requiring employers not to behave in a way that seriously damages the working relationship? This question had been left open by the Court of Appeal and, more recently, cast into doubt by the Appellate Division's comments in Dong Wei v Shell Eastern Trading (Pte) Ltd [2022] 1 SLR 1318 (“Dong Wei”). Even though those comments/remarks were not binding, those remarks caused understandable debate because they raised the possibility that the implied term might not be fully “entrenched” in Singapore law.
The High Court answered: yes, it does.
What Is the Implied Term?
The implied term of mutual trust and confidence means an employer must not, without reasonable and proper cause, conduct itself in a way that is calculated and likely to destroy or seriously damage the trust and confidence between employer and employee[1]
Three important limits keep this workable:[2]
First, the bar is high. It takes “quite extreme behaviour”, not every management decision that upsets an employee will cross the line.
Second, the test is objective. The question is not whether the employee felt hurt, but whether a reasonable person would view the conduct as relationship-destroying.
Third, there is a defence. If the employer had reasonable and proper cause, there is no breach, even if the conduct was damaging, though this depends on the facts.
What Is not included in the ambit of implied term?
The Court drew an equally firm line on the other side. Mr Mudgal also argued for an implied term preventing employers from running termination processes in an “arbitrary or bad faith” manner. The Court rejected this argument.[3] Employers remain free to terminate employment by giving the required notice, for any reason, or no reason at all, so long as they follow the contract. The implied term does not fetter that right.
Why Did SAP Lose?
SAP did not lose because it terminated Mr Mudgal. It lost because of their actions before terminating him. The Court found three serious problems with how the PIP was run:[4]
- The outcome was pre-decided. Internal emails showed that senior management had already agreed to remove Mr Mudgal before the PIP began. One manager wrote that she wanted him removed ‘as soon as possible’. Another recorded that management had ‘no appetite’ for long-term behavioural correction, yet the PIP was put in place anyway.
- Improvements were dismissed dishonestly. Mr Mudgal actually improved his conduct during the PIP. His supervisor acknowledged he was ‘following the plan’ and behaving professionally. Yet she chose to doubt his sincerity, relying partly on feedback she attributed to colleagues, feedback those colleagues later denied giving.
- The process was shoddy. There were no documented weekly check-ins. The PIP was never formally closed out and Mr Mudgal was left believing he had passed as he had received no negative feedback. The Court's concluded that, “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.”[5]
Crucially, the Court emphasised SAP had an easy alternative: it could have simply invoked the contractual one-month notice clause and terminated cleanly.[6] Instead, it ran a dishonest process which on any objective view, be calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. It was these actions that the court found in breach of the implied term of mutual trust and confidence.
What Did Mr Mudgal Actually Receive?
Despite winning on the breach, Mr Mudgal received only $1,000 in nominal damages. His $5 million claim failed because he could not prove his losses flowed from SAP's breach:
- His difficulty finding work was more likely caused by COVID-19 immigration restrictions and his own immigration status, not any reputational damage from SAP.
- His major depressive disorder pre-dated the discovery of the breach, he only learned of the pre-ordained PIP during litigation, so it could not have caused his earlier distress.[7]
- His claim was essentially for lost future salary, which the law does not allow, as there is no right to lifetime employment.[8]
What Should Employers Do Differently?
On PIPs:
- Only use a PIP if you genuinely intend to retain the employee if they improve. If the decision to exit is already made, do not run a PIP, use the termination clause directly.
- Set clear, measurable objectives. Hold documented check-ins. Formally close out the plan and communicate the outcome to the employee.
- Never circulate internal emails describing the PIP as a "process to follow" while the exit is already planned. Those emails become evidence.
On internal communications:
- Assume every internal message could appear in court. Statements like "full alignment on removing him" or "no appetite for long-term correction" will be scrutinised.
On fair evaluation:
- If an employee improves during a PIP, acknowledge it genuinely. Dismissing real improvement as "faking it", without proper basis, is exactly the kind of conduct the Court found problematic.
On termination:
- When a management decision to exit an employee has been made, use the contractual notice provision. It is lawful, clean, and does not expose the company to claims of dishonest conduct.
The court’s message is balanced. Employers may still manage firmly and terminate freely. But they must manage honestly.