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What is a Psychological Contract? Definition, Examples, Breaches

5 min read
psychological contracts developing in the workplace

Understanding psychological contracts is crucial for employers and employees, as they form the framework of the working relationship alongside the legal employment contract.

This article explains the concept and gives examples of unspoken agreements within the workplace.

What is a Psychological Contract?

A psychological contract describes the unwritten expectations and mutual beliefs between individuals and organisations regarding their roles, responsibilities, and commitments. It’s an implicit understanding of reciprocal obligations, trust, and the emotional connection between employers and employees. This unspoken agreement influences attitudes, motivation, and job satisfaction.

Psychological Contract Theory

The theory originated in the 1960s from organisational scholar Denise Rousseau, who formed the idea based on his findings from psychology and organisational behaviour.

Rooted in perceptions of fairness and reciprocity, psychological contracts revolve around the unwritten aspects of the employment relationship based on trust, loyalty, and shared values. Employers and employees form a ‘deal’ from which their behaviours and attitudes grow. Individuals interpret and negotiate these psychological contracts, shaping their motivation and commitment to the organisation.

Importance of a Psychological Contract

When a healthy psychological contract is well-managed and reciprocal, it forms the foundation for a positive work environment, influencing motivation, job satisfaction, and commitment. It can offer several benefits in the workplace:

  1. Enhanced motivation: Clear expectations and a positive psychological contract can motivate employees by fostering a sense of purpose and job satisfaction, leading to greater career development and employee retention.
  2. Better organisational performance: They can contribute to a cooperative and collaborative work environment, enhancing overall organisational effectiveness.
  3. Effective conflict resolution: A balanced psychological contract facilitates effective conflict resolution by providing a basis for understanding and addressing issues that may arise in the employer-employee relationship, improving job security.
  4. Employer brand: Then fulfilled, they contribute to a positive organisational reputation, attracting top talent and improving organisational reputation.

How to Handle a Psychological Contract Breach

A contract of this kind is rooted in how employers and employees behave with each other. If someone acts in a way that doesn’t meet this unspoken agreement, it can result in a broken psychological contract.

Considering how intangible they are, psychological contract breaches can be tricky to deal with. Unlike a legal contract, the employer and employee can’t consult a written document for the solution. For that reason, these steps can be taken to address the issue:

    1. Acknowledge the breach and encourage open communication.
    2. Identify the root cause, whether it be miscommunication, changing circumstances, or another unforeseen factor.
    3. Negotiate solutions to remedy the breach and decide on what this means practically, such as changing workload or providing more support.
    4. Implement the agreed changes through policy adjustments, communication improvements, or training programmes.
    5. Rebuild trust! This part is key. Each party will need to demonstrate their commitment to the relational psychological contract.

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Psychological Contract Examples

Implied contracts, like psychological contracts, can be difficult to imagine as they don’t exist on paper; they’re all about unspoken expectations and organisational promises. Here are a few contracting examples:

  1. Promised career development: This is possibly the most common psychological contract example. An employee may expect opportunities for skill development and career advancement based on informal promises or discussions during the hiring process. If these opportunities don’t materialise, it can lead to a breach.
  2. Recognition and appreciation: Employees may anticipate recognition and appreciation for their contributions, whether through feedback, awards, or promotions. A breach may occur if such acknowledgement doesn’t materialise despite achievements happening.
  3. Job security: Implicit assurances of job security may form a psychological contract. If an employee perceives job insecurity due to unclear communication or unexpected layoffs, this can lead to a breach, which can impact the working relationship.

What does Contracting Mean?

More generally, contracting refers to the process of making or entering into a formal agreement or contract. It involves negotiating terms, conditions, and expectations between parties to establish a mutual understanding and commitment. In business or employment contexts, contracting often involves formalising agreements and outlining responsibilities, deliverables, and terms of engagement.

Contracted Hours Definition

Contracted hours refer to the specific number of hours that an employee has agreed to work within a given period, as outlined in their employment contract. These hours typically represent the standard or expected amount of work per week or month and are a fundamental aspect of the employment agreement.

Contract of Employment Definition

A contract of employment is a legally binding agreement between an employer and an employee, outlining the terms and conditions of the employment relationship. It includes details such as job responsibilities, working hours, compensation, benefits, and other key aspects, establishing the rights and obligations of both parties during the course of employment.

employer and employee with positive psychological relationship


What is a psychological relationship?

A psychological relationship is the emotional connection between individuals, encompassing mutual understanding, empathy, and communication. It is rooted in the nuanced aspects of shared experiences, trust, and interpersonal dynamics. It can exist in both personal and employment relationships.

What is meant by the psychological contract?

The psychological contract refers to the unwritten, implicit expectations and mutual beliefs between individuals and organisations regarding their responsibilities and commitments. It includes the emotional and psychological aspects of the working relationship.

What is an example of a psychological contract issue?

For example, an employee might expect career advancement opportunities based on informal promises during hiring but feel disillusioned if those opportunities do not materialise, leading to a breach in the contract.

What is an example of contract psychology?

A common contract psychology example includes when employees anticipate recognition for their work, whether that be through an award, promotion or feedback.

What are the 4 types of psychological contract?

The four types of psychological contracts include transactional, relational, balanced, and transitional. Transactional contracts focus on specific job roles and tasks, relational contracts emphasise long-term relationships, balanced contracts seek a mix of job security and flexibility, and transitional contracts involve short-term or project-based commitments.

What breaks the psychological contract?

Various factors can breach the psychological contract, such as unmet expectations, lack of communication, abrupt organisational changes, or perceived unfair treatment. Breaches may result from a failure to fulfill implicit promises, leading to decreased trust, job dissatisfaction, and a strained employer-employee relationship.

Emma is a Content Writer with 5 years of Marketing experience. She specialises in HR strategy and modern workplace trends. When she's not writing, she's running by the beach or cooking Italian food.

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