Psychological Contract

The psychological contract (PC) is a framework that is central to understanding the employment relationship in both its relational and transactional forms. Mergers and acquisitions often lead to the development of a new PC being formed, accompanied by the employee entering into a process of socialization where trust and communication become essential to forging a binding relationship sealed within the new contract. Within this chapter I consider the period of readjustment, when the PC will be reassessed and reevaluated based on any changes to the employee’s perceived obligations of the organization. This continual assessment of perceived contract obligations and experienced outcomes will have important implications toward any apparent breach in the PC. Employees will be increasingly aware of the organization’s perceived obligations to them at a time of change, testing issues of trust within the employment relationship. In this context, trust has been recognized as an important mediator between contract breach and work outcomes, such as future contributions to the workplace and employee withdrawal. Early promises could be difficult to fulfill, and an inability to deliver will be left in the hands of those on the front line (frontline managers, or FLMs). I discuss the influence of integrity and fairness within these relationships, and their influence toward feelings of contract breach and subsequent reactions to that perceived breach. Drawing from the business school case, it is evident that the trust employees developed in their leadership had suffered because of the changing nature of their organization’s identity and strategy, leading to experiences of a perceived breach of contract.