In this zone, we critically discuss the concept of the psychological contract and evaluate the extent to which it is key to understanding the dynamics of the people–organisation relationship.
The psychological contract is one of the most contested concepts in the HR arena. It has generated widespread interest, discourse and debate from both academics and practitioners, in a bid to develop a clearer understanding of the factors that may influence greater levels of individual engagement, commitment and motivation in the workplace.39–41 The antecedents of the psychological contract can be traced back to the work of Argyris,42 whose ‘psychological work contract’
theory defined the employment relationship as being rooted in the perceptions and values that are held by the individual and organisation.39 As highlighted earlier in the chapter, the concept is also premised on the social exchange theory. Blau43 posited that the people–organisation relationship is predicated on subjective interchange and social relationships and the extent to which these are reliant on unspecified or subconscious, socially constructed obligations or mutual expectations. Like the organisational shadow, these obligations and expectations are invisible, intangible and implicit, but if breached, can have a major impact on organisational behaviour in the workplace.44 According to Guest,40 the psychological contract nestles (albeit rather awkwardly) between organisational psychology and employment relations. He suggests that it is neither a theory, nor measure, but a ‘hypothetical construct’ (p. 650), derived from a ‘legal metaphor’.
Cullinane and Dundon39 concur and proffer that it is an ‘ideological construct’ (p. 123). Guest strongly questions whether the comparison to a ‘legal contract’ is appropriate, given that the construct implies the presence of a mutual agreement between parties. However, as the bedrock of the psychological contract is implicit, embedded, subjective perception, ‘agreement exists in the eye of the beholder’,45 thus rendering any idea of an agreement between both parties in the people–
organisation relationship intrinsically problematic.
39 Guest adds that the inherent implicitness and subjectivity of the psychological contract undermines the notion of an agreement, as its terms are stored in the mind rather than a filing cabinet or a safe. Therefore, neither party can be sure whether their expectations and obligations are the same, or indeed, have been met. Noting the multiple paradoxes surrounding the psychological contract, Cullinane and Dundon advocate that it should be recognised as a ‘social exchange interaction’ (p. 119), rather than a contract in its metaphorical sense.

Arguably, the psychological contract is formed from the point at which a newcomer enters the organisation.
The induction and socialisation processes orient the individual to the organisation and its norms and values, in preparation for their transition from an ‘outsider’
to ‘insider’.46 This process may invariably lead to individual assumptions and perceptions about what the organisation deems as appropriate behaviour and the consequences of conforming to, or deviating from, the implied and explicit terms of the formal contract of employment.40,41,47 However, Herriot48 claims that the individual’s expectations of, and obligations to, their employer may be socially constructed over many years and shaped by their experiences in previous organisations. Individuals with little or no experience, including those on shortterm or temporary contracts may, through the socialisation process, form what Sherman and Morley49 refer to as an ‘anticipatory psychological contract’. Although the contract is ambiguous and basic, it will be a vehicle to guide how the newcomer interacts with their new organisation.

According to Dabos and Rousseau50 and Hui et al.,51 there are three types of psychological contract. First, the transactional contract characterises obligations that are primarily based on shortterm economic transactions with little or no loyalty. Individuals are paid to perform a fixed set of duties and responsibilities and the employer is not obligated to provide opportunities for training and development. Second, the relational contract is based on mutual loyalty, stability and trust and the individual’s high emotional and attitudinal commitment to the organisation. Finally, a balanced, or hybrid, contract incorporates aspects of both the transactional and relational contracts, but the focus here is on the employer’s obligation to develop the individual and provide career support. Arguably, the type of psychological contract that is formed by the individual may be linked to prior subjective perceptions and positive or negative experiences from previous employments.
McDonald and Makin,52 Guest and Cullinane and Dundon all concur that a major implication for organisational behaviour in the workforce is the perceived breach or violation of the psychological contract. A breach occurs when an individual perceives that the organisation has not honoured or lived up to one or more of its obligations.
How can the breach be identified? Cullinane and Dundon profess that the extent to which the psychological contract has been breached is difficult to quantify, due to its inherently unspecified and implicit nature.
However, Jensen et al.44 suggest that breaches are visible and manifested in counterproductive work behaviours that are, in themselves, violations of organisational norms and contrary to its legitimate interests. The authors link such behaviours to the type of perceived psychological contract the individual has with the organisation.
For example, they posit that a relational contract breach results in the engagement of abusive behaviour, revenge and other means of retaliation, such as withdrawal.
Breach of the transactional contract may provoke aggression and making threats and inappropriate comments.
One can draw parallels with ‘light’ and ‘dark’
organisational shadow behaviours that could also be counterproductive.53–55 Along with psychological contract breaches, these collective behaviours have a huge impact on the organisation and its members and can result in substantial costs, if not addressed by managers.
To conclude, studying the psychological contract is key to understanding the dynamics of the people–organisation relationship. It is a complex, paradoxical construct that is embedded in the social exchange theory and subjective perception of both parties. It is an important lens through which individual perceptions, behaviours and experiences are filtered,56 making it key to developing a knowledge and appreciation of how they impact on collective organisational behaviour in the workplace 

1. Guest and Cullinane and Dundon argue that the psychological contract is a hypothetical, ideological construct. To what extent do you agree with their view?

2. In exploring the nature of the psychological contract, Guest 40 (p. 652) stated that ‘where the implicit encounters the implicit, the result may be two strangers passing blindfold and in the dark, disappointed at their failure to meet.’ Critically discuss his statement and its implications for managing organisational behaviour in the workplace.

3. The counterproductive work behaviours that emanate from a breach of the psychological contract share parallels with light and dark organisational shadow behaviours. What, in practice, can the organisation do to ‘manage’ the psychological contract and avoid potential breaches or violations?