The implied term of mutual trust and confidence: does it have a future in the employment relationship?

What you need to know

• The issue of whether an implied term of mutual trust and confidence exists in employment contracts under Singapore law remains unsettled to date.
• The Singapore courts appear reluctant to imply such a term into the employment relationship as this might either give rise to unintended consequences or unduly fetter a party's freedom of contract.
• Even if such an implied term is held to exist, this does not extend to requiring employers to either comply with all of its internal policies or conduct internal investigations promptly, thoroughly or fairly, whether as a matter of law or as a matter of fact.
• In this regard, the implied term of mutual trust and confidence would not go beyond a minimum content of fairness.

What you need to do

• Employers should continue to treat their employees fairly, and not engage in any form of conduct which could destroy or irrevocably damage the working relationship between parties.
• Employers should clearly state which of its internal policies are intended to be binding and which merely set out aspirational statements, so as to avoid any potential disputes with employees around the legal impact of its documentation.
• In order to preserve maximum latitude and discretion in the conduct of risky endeavours such as internal investigations, employers should avoid unduly prescriptive or lengthy written policies. In this regard, less is more.

Background

An employee was accused of harassment by a line report in Japan, which led the employer to commence an internal investigation. The internal investigation determined that the employee was guilty of harassment. Concurrently, the subordinate also filed a harassment claim against the employee before the Tokyo District Court. However, the Japanese court subsequently dismissed her harassment allegations.

Unsurprisingly, given the incongruent outcomes, the employee raised concerns about the company's conduct of its internal investigation and asked for the findings to be overturned. The company's internal audit department duly reviewed the investigation but determined that the initial findings would be upheld.

Dissatisfied, the employee subsequently commenced legal proceedings against the company in Singapore for, amongst other things, mishandling the internal investigation and subsequent internal audit. The employee alleged that the company was in breach of its implied duty of mutual trust and confidence to him as it had not:

• complied with its own internal policies in the conduct of the internal investigation and subsequent internal audit; and
• conducted the internal investigation and subsequent internal audit promptly, thoroughly or fairly.

The company disputed the allegations and applied to have the action struck out.¹

Issues

As this was only an interlocutory hearing, the issue before the court was a threshold one – whether, on the face of the employee's pleaded case, his claims disclosed a reasonable cause of action (i.e. whether, as alleged by the employee, the company could have been in breach of the implied term of mutual trust and confidence).

The analysis nevertheless required the court to take a view on both the implied terms which the employee asserted existed in his employment contract and the legal principles concerning the implication of terms into employment contracts more generally.

Decision

The court reiterated the current state of the law and emphasised that the issue of whether a duty of mutual trust and confidence should be implied into employment contracts continues to remain unsettled.² While earlier High Court decisions had accepted the implied term as part of Singapore law,³ more recent High Court decisions have taken the opposite view that such an implied term ought not to exist.⁴

However, on the basis that it remains open for the Singapore appellate courts to make a finding that such an implied term could exist in employment contracts, the court was nevertheless of the view that this did not extend to requiring an employer to either comply with its internal policies or conduct investigations "promptly, thoroughly or fairly", whether as a matter of law or as a matter of fact.

Whether an implied term that an employer is bound to comply with its internal policies exists as a matter of law

The court referenced an earlier High Court decision⁵ and affirmed that such an implied term did not exist in employment contracts since implying such a term would introduce too much uncertainty:

• there would be uncertainty over which of the employer's documents constituted internal policies;
• even if the full body of internal policies could be ascertained, there would still be uncertainty over which parts of those policies were merely aspirational statements and which parts were actually contractually-binding; and
• this would lead to the unintended result where companies are contractually bound by all of their internal policies, even if it would not be appropriate for such policies to form part of the contractual obligations.

Whether an implied term that an employer is bound to comply with its internal policies exists as a matter of fact

Terms should not be lightly implied in fact,⁶ and should only be implied in fact where:

• the contractual lacuna arose because the parties did not contemplate that gap;
• implying such a term would be necessary for business efficacy or to give commercial sense to the contract; and
• the parties must have clearly intended for such a term to have been included (and would have responded "Oh, of course!" if the issue had been put to them at the time of the contract).⁷

On the facts, the court declined to imply such a term because there was no gap in the employment contract. In fact, the company handbook explicitly stated that it did not constitute a contract of employment. It was also evident that the contractual arrangements between the parties (where by the employee carried out his duties and the company remunerated him accordingly) worked without the need for any terms to be implied.

Whether an implied term that an employer is bound to conduct investigations promptly, thoroughly or fairly exists as a matter of law

The court held that the implied duty of mutual trust and confidence was not intended to be an open-ended one, as its purpose was limited only to ensuring a balance between an employer's interest (in managing its business as it sees fit) and an employee's interest (in not being unfairly exploited).⁸

Hence, any such implied term should not go beyond a "minimum content of fairness" in requiring the company to conduct the internal investigation and subsequent internal audit fairly.⁹ Thus, so long as the allegations were put to the employee and he was given a chance to respond, the company would not need to have regard to the other obligations of natural justice or due process. It would even be permitted to, amongst other things, suspend the employee or withhold the findings of the investigation.

As a matter of policy, it would also be unduly onerous to imply such a term into the employment contract as that would constrain the employer's interest in managing its business as it deems fit.

Key takeaways

It remains an open question whether a duty of mutual trust and confidence would be implied into employment contracts. Recent decisions of the Singapore courts appear to indicate that judges are reluctant to imply such a term into the employment relationship, either as a matter of law or as a matter of fact, so as not to unduly fetter a party's freedom of contract.

This is good news for employers as it does not open a backdoor to a more onerous or unintended suite obligations which employees can hold companies to if outcomes are not favourable to them. That being said, employers are still expected to treat employees with a minimum degree of fairness, and not conduct itself in a way which destroys the working relationship between parties.