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[From Singapore Office] Employment law: implied obligations and termination – takeaways from recent cases

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July 2026

[From Singapore Office] Employment law: implied obligations and termination – takeaways from recent cases

Author: Justin Ee, Nozomi Kato (Co-author)

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Publisher: Nagashima Ohno & Tsunematsu

Journal / Book: NO&T Dispute Resolution Update No.23/NO&T Asia Legal Review No.120 (July, 2026)

Notes: A PDF file of the bilingual version is also available by clicking on “Download full text (PDF)”. For details on our Dispute Resolution Team at the Singapore Office, please refer to this PDF file.

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*Please note that this newsletter is for informational purposes only and does not constitute legal advice. In addition, it is based on information as of its date of publication and does not reflect information after such date. In particular, please also note that preliminary reports in this newsletter may differ from current interpretations and practice depending on the nature of the report.

Introduction

In Singapore and other common law countries, an employment contract is not a purely commercial contract – it is considered a “relational contract” involving a continuing relationship between the parties in which they make a substantial commitment to each other. The special nature of this relationship has sometimes given parties in sour relationships grounds to imply unwritten terms into the employment contract and claim damages for breach of those implied terms.

Employers typically argue breach of implied duties of “good faith” or “fidelity” in cases where employees had engaged in conduct contrary to the employer’s interests such as divulging trade secrets or diverting business to competitors. On the other hand, employees have alleged breach of an implied term of “mutual trust and confidence” where they may have suffered loss due to their employers’ misconduct such as fraud or wrongful termination.

Until recently in Singapore, the law regarding the implication of these terms has oscillated and remained quite unsettled. Although the implied duty of “fidelity” (i.e. a duty to act honestly and faithfully) has been firmly recognised, there have been conflicting decisions on the existence of “mutual trust and confidence” and “good faith” duties.

Mutual trust and confidence; termination of employment

Thankfully, the recent Singapore High Court decision of Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 has brought more clarity, at least with regard to the existence of the implied term of mutual trust and confidence. In that case, the claimant employee made several claims against the defendant employer, one of which was for breach of an implied term of mutual trust and confidence by engaging in a course of acrimonious and unfair conduct culminating in his termination. One of the employee’s key allegations was that the performance improvement plan that the employer had placed him on was a charade because by that time his termination had already been pre-determined.

As a preliminary point, it will be of interest (especially to those from civil law countries) that the High Court reiterated the common law principle that an employer can terminate an employment contract at any time, and for any reason or for none, so long as the termination was in accordance with the contract. For example, under Singapore law, if an employment contract provides that either party may terminate the contract with 2 months’ notice, the employer can do so simply by giving 2 months’ notice (or alternatively, payment of 2 months’ salary in lieu of notice) at any time and without providing any reason. The underlying rationale is the common law notion of the freedom of parties to enter into and exit contracts. It was on this basis that the Court dismissed the employee’s assertion of an implied term for parties “not to engage in a termination process that is arbitrary, capricious, perverse, irrational and/or in bad faith”.

Importantly, against a backdrop of conflicting case precedents, the High Court affirmed the existence of an implied term of mutual trust and confidence in employment contracts. This means that the parties shall not, without good reason, engage in conduct that is calculated and likely to seriously damage the relationship of confidence and trust between them.

More specifically, the Court agreed with the employee that the “duty not to behave in an intolerable or wholly unacceptable way is one of the sub-duties of the implied term of mutual trust and confidence”. The Court found that the employer had breached the implied term of mutual trust and confidence because “the claimant was pre-judged and put on the [performance improvement plan] while it had already been decided that his employment would be terminated, along with the abject shoddiness with which the [performance improvement plan] was handled”. The Court’s focus was not on the employer’s decision to terminate per se, but rather the employer’s conduct before the termination which the Court said was “dishonest” and that “[n]o employee should be expected to put up with being misled and deceived in such a manner”.

Good faith

While the implied term of mutual trust and confidence appears to be settled under Singapore law (for now at least, unless overruled by a higher court), the same may not be said for the duty of good faith. The courts have expressed reluctance to imply a duty of good faith into contracts as it militates against the freedom of contract. In the context of employment contracts, implying such a term (which is considered wider and more ambiguous than mutual trust and confidence) may fetter the employer’s right of termination.

Yet at the same time, there are some traces of court decisions, including a recent one by the Appellate Division of the High Court in GTL Agencies (S) Pte Ltd v Neo Boon Huat and others [2026] SGHC(A) 6, that appear to at least implicitly recognise the existence of an implied duty of “good faith and fidelity” in employment contracts. It therefore remains to be seen whether the duty of good faith will firmly take root in Singapore.

Concluding thoughts

Ultimately, the practical effect of implying a duty of good faith in employment contracts is likely to be limited considering the significant overlap between “good faith” and “fidelity”, and the latter is already an established implied term (as mentioned at the outset). In this regard, the duty of fidelity (to act honestly and faithfully) should be sufficient in most situations for the innocent party to rely on to bring claims against the errant party.

Separately, the successful implication of duties in employment contracts per se is insufficient. The claimant must further establish breach of such duties and resultant loss, which is typically a fact-sensitive exercise. While the employee in Prashant Mudgal succeeded in his case for breach of mutual trust and confidence, he ultimately failed in various other aspects of his case. Notably, he failed to prove his claimed losses of almost SGD5 million and was awarded only nominal damages of SGD1,000, resulting in a pyrrhic victory for him.

July 8, 2026

This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. Given the nature of this newsletter as general information, statutory provisions and source citations may have been intentionally omitted. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.

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Lawyers

Justin Ee

Partner

Singapore

Nozomi Kato

Associate

Tokyo

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