First published on Wednesday, June 24, 2020
Last updated on Friday, March 7, 2025
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A psychological contract is a relatively abstract thing. It covers the expectations, beliefs, commitments, and understandings between you and your employee.
American scholar Denise Rousseau developed the idea of a psychological contract in the 1960s.
But you can't see this contract. You can't touch it. You don't need to write it down anywhere. There aren't printed copies of it, unlike that of a contract of employment.
This also means that neither party has signed it. And so, the psychological contract is open to yours and your employee's interpretations.
Together, the psychological contract and the employment contract outline the relationship between you and your staff.
The psychological contract and employee engagement
Each of your staff wants to feel like you're treating them fairly.
During their time working for you, you'll make informal arrangements with them. You'll share common ground and discuss mutual beliefs. If you encourage openness, your employee should feel like they can talk to you about:
Career progression
Salary increases
Changes to workload
Changes to work equipment, such as to accommodate a disability or condition
Of course, many factors could affect a chat about any of these topics. For example, your employee's length of service, their recent achievements, your budget.
Since both parties can have different views on a topic, the outcome you implement isn't always the outcome that the employee wanted beforehand.
Psychological contract breach and violation
How might you or your staff violate the unwritten terms of the contract? You might fail to maintain regular communication. You might do a U-turn on something that you agreed with your employee during a meeting.
You might even dump a large pile of work on someone's desk, giving them an impossible deadline, no prior notice, and no incentive to prioritise this task.
Or, in matters of conduct, you might be inconsistent with your management. For example, if you normally look the other way when someone is a couple of minutes late, but one day decide to berate one of your staff when they clock in at 9.02am, the employee will feel like you've breached your psychological contract with them. You've gone against an unwritten rule.
What happens after the breach?
If one of your staff thinks you've breached your psychological contract with them, they're at risk of suffering from low employee engagement.
Their morale will drop because they've lost confidence in the person — and the organisation — that rewards them.
Their work rate suffers, meaning their output suffers.
Their negativity can lead to conflict with their colleagues, as well as unauthorised absence and even misconduct.
And, if your employee believes that whatever you did or failed to do is beyond repair, they might resign.
Manage expectations
When having a discussion with, or writing a letter to, one of your staff, do everything you can to manage how they view what you say. You don't want to mislead one of your staff into thinking you've promised them something that you haven't.
It's also important for you, as a boss, to manage your own expectations. Just like you, your staff are likely to be dealing with complicated situations inside and outside of work. An open-door policy can encourage staff to come to you whenever they have a concern or query.
How HR software can help
Our 24/7 employment relations advice service is available for when you need help tackling staff issues, including managing expectations of staff or dealing with difficult discussions.
Book in a free demo today to discover the benefits of HR software and a HR app for your business. Or give us a call on 1 300 029 198.
