Everyone has heard of the Contract of Employment which represents our legal rights and obligations as an employee; but have you heard of the psychological contract?

The psychological contract also exists between an employee and their employer. However, while the written contract of employment can be the same contract with all employees – I certainly have a standard contract with my employer and my lecturer colleagues all have the same contract with the same terms and conditions. The psychological contract is different and my contract will not be the same as those of my colleagues. Everyone’s psychological contract will be different, we could even say unique, as its formed from our own expectations of our employer. What makes this contract difficult to manage is generally we don’t speak about these expectations and they’re never written down. In this post I’m going to explore and explain what the psychological contract is and how it shapes the relationship we have with our employers.

The Purpose of the Psychological Contract

The psychological contract relates to the relationship between the employer and their employees. When we have a healthy psychological contract it means the expectations on both sides are being met. This means we are more likely to have employees who want to come to work, who feel valued, trusted and respected by their employer and therefore are more likely to want to go that extra mile. Employers want loyal, committed and engaged employees – to achieve this, the psychological contract needs to be healthy.

We have many examples today where that’s not happening, where employees are unhappy – and this can lead to tensions in the employment relationship – an obvious example in 2022 is to consider the number of strikes and other forms of industrial action taking place – if the expectations of employees were being met (generally looking for cost of living wage increases) there would be no need for industrial action and we can see the employee/employer relations breaking down and the psychological contract is damaged as tensions rise.

Key Features of the Psychological Contract

The psychological contract is important because it has a direct impact on the nature of the relationship between the employer and the employee. A healthy contract means they will trust each other and will be more effective working together. From a HR perspective, we will always seek to ensure a stable and healthy contract.

While it is not written down anywhere, the psychological contract is nevertheless important and at the extreme, if its fractured and trust is lost on either side, it may be very difficult to regain and could lead to the employee leaving their employer.

Both the employer and employee have expectations of each other. These will be broad-ranging and as I said earlier, will vary from employee to employee. The expectations need to be realistic – and part of the role of HR and Line Managers will be to ensure that employee expectations are realistic; that they are not looking for their employer to deliver things that are not achievable – such as expecting long term job security which for most employers, will be impossible to provide. With such an expectation, its better to help the employee reframe that expectation to something like training and development opportunities so they remain employable if they should need a new job (or a promotion) in the future.

Often the psychological contract is looked at purely from the perspective of the employee’s expectations but the employer, through the agency of the Line Manager, also has expectations. This really is an exchange of expectations and we need to ensure that the employers’ expectations are met too. The following examples will hopefully illustrate this, and help to highlight the difference between the contract of employment and the psychological contract too.

Examples of Expectations

The contract of employment will say how much you should be paid – hourly/weekly/monthly etc. This may or may not be a good level of pay; it could be a legal minimum wage.

Employees will want to be paid fairly – possibly even to be paid well (these concepts are also subjective so individual employees will have their own ideas of what being fairly paid/well paid looks like).

Employers for their part may believe they’re paying their employees well. But they will also have expectations that their employees will turn up for work; that they will work hard and produce good quality work. (The contract of employment says the employees have to turn up for work and that the employer has to provide work – but it doesn’t usually indicate how hard an employee should work).

Think about the concept of “Quiet Quitting” – which demonstrates this in practice. The expectations of both the employer and employee are out of balance with neither side having their expectations met. Technically the contract of employment terms are being met, but employees feel their wages are not fair and don’t represent the value they attach to the work they are doing. When the employees stop going that extra mile, the employer’s expectations of good quality hard work aren’t being met. So we have tension within the employment relationship, unhappy employers and employees, and an damaged psychological contract.

Employment Relationships

Its important to understand the employment relationship in terms of the psychological contract as it gives a deeper understanding of the emotional reactions and feelings of not counting or not being valued by an employer and where we can end up with a breakdown of trust in the relationship. If this isn’t addressed, you can imagine the consequences for employers – unhappy, unproductive staff; increased absence and employees who will look for work elsewhere.

The Role of HR

Given the significance of the psychological contract and the impact it can have on employee performance and the employee relationship with their employers, HR has an important role to play in ensuring harmonious employee relations and taking steps to manage the tensions and conflicts when they do arise. Understanding the needs and expectations of both sides is a good starting point.

Thinking about the psychological contract; how would you describe your own relationship with your employer. What expectations are/are not being met and what are the consequences of that?

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