Psychological Contract Breach
Cheryl A. Moore, PsyD
CEO, Prestige Countertops & Services
When an individual purchases a new car a contract is signed documenting the expectations and provisions of the buyer and seller. There is a reciprocal exchange that is taking place. The same is true when an employer hires a new employee.
The potential new employee is interviewed, and in the interview process, many job-related topics are discussed. These topics can include such items as business operations, business culture, job duties and expectations, growth and promotions, fringe benefits, and pay scales to name a few. Once the candidate is selected the individual will be hired by the organization and proceed through the hiring process by signing all the required employment papers, and most likely given an employee handbook.
In this employee/employer relationship there is another element involved in which the employer and the employee have developed expectations of one another that each party expects to receive from this relationship. These expectations are unwritten expectations that may not be written in the employee handbook or verbalized from either party — a psychological contract. So, how may an employee react when this psychological contract is breached or violated? How, in turn, does this impact the organization?
Psychological contracts and their positive and negative effects have been actively researched over the past 30 years. In a study published in 1995, Rousseau suggested that psychological contracts consist of individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization. These expectations are not only formed upon hiring, but also as employees are in their positions over time. The psychological contract is an ongoing exchange. When some expectations and promises are met, new ones take their place. The contract can be transactional or relational. The transaction can be as simple as being promised extra pay for extra effort or less tangible like employee loyalty and support for job security and fair evaluations. An example of a psychological contract would be an employee working extra hard for an inferred promotion only to find the promotion is given to someone else. Another example would be a mutual agreement between the employee and management that extra performance and effort would result in a pay raise that does not go through.
As leaders and mangers, it is important to understand the impact of psychological contracts on our employees and the organization when the employee perceives that the contract has been breached. Morrison and Robinson (1997) defined psychological contract breach as “the cognition that one’s organization has failed to meet one or more obligations within one’s psychological contract in a manner commensurate with one’s contributions” (p. 230). The authors further suggested that psychological contract violation is the emotional and affective state that may follow awareness of the unfulfilled obligation. Studies have suggested that the occurrence of psychological contract breach leads to negative attitudes and behaviors including a decrease in job satisfaction, performance, and organizational commitment. More recent studies (Henderson & O’Leary-Kelly, 2021) have suggested that the impact of the breach depends on how emotional employees get following the breach with sadness and anger being the top two emotions, followed by frustration and betrayal. Studies have also shown that the outcome of a perceived breach could depend on the strength of the relationship between the employee and the leader of the organization and the intentionality of the breach. Finally, the most important factor is trust. When employees perceive a breach, they lose trust in the organization and its ability to fulfill obligations moving forward.
As mentioned above, the impact of the breach on psychological contract evaluation depends on the individual and the emotions that are evoked because of the breach. As managers and leaders, we should take an interest in our employees and know what is going on with them both mentally and physically. If an individual is already stressed out about something, a psychological contract breach may cause him or her to react stronger than they would have otherwise.
Good communication with our employees is the best way to combat this. Maintaining a two-way communication line with our employees allows both parties to be open and honest with their thoughts and expectations. When an employee feels like they are confronted with a psychological contract breach he or she can react in a less adverse manner if they know the organization or leader is being as forthright as expected. After an identified breach occurs, have a conversation identifying where the disconnect is and how,
if possible, it can be rectified. If the situation cannot be rectified,
have that conversation as well. Transparency builds strong relationships.
The information in this article is provided to make the readers aware of Psychological Contract Breach and the impact a perceived breach can have on the employee or organization. Further research on this topic can be found in scholarly research literature or by contacting the author.
Cheryl is the CEO of Prestige Countertops & Services, Inc. Contact her at cmoore2@mercyhurst.edu .
For More Information
Henderson, K. E., and O’Leary-Kelly, A. M. (2021). Unraveling the Psychological Contract Breach and Violation Relationship: Better Evidence for Why Broken Promises Matter. Journal of Managerial Issues, Vol. XXXIII (2).
Morrison, E. W., and Robinson, S. L. (1997). When Employees Feel Betrayed: A Model of How Psychological Contract Violation Develops. Academy of Management Review 22 (226-256).
Rousseau, D. M. (1995). Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Thousand Oaks, CA: Sage Publications