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Factsheet:

The psychological contract

Resource summary

This factsheet was last updated in January 2016.

What is the psychological contract?

The term 'psychological contract' was first used in the early 1960s but became more popular following the economic downturn in the early 1990s. It’s been defined as '…the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other'1. These obligations will often be informal and imprecise: they may be inferred from actions or from what has happened in the past, as well as from statements made by the employer, for example during the recruitment process or in performance appraisals. Some obligations may be seen as 'promises' and others as 'expectations'.

The psychological contract is different from a legal contract of employment which will, in many cases, offer only a limited and uncertain representation of the reality of the employment relationship. The employee may have contributed little to its terms beyond accepting them.

By contrast, the psychological contract addresses perceptions of the employer-employee relationship in terms of mutual obligation and may be more influential than the legal contract in affecting how employees behave from day to day. It’s the psychological contract that effectively tells employees what they are required to do to meet their side of the bargain and what they can expect from their job. It may not, and generally isn’t, strictly enforceable, though courts may be influenced by a view of the underlying relationship between employer and employee, for example in interpreting the common law duty to show mutual trust and confidence.

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  • What is the psychological contract?
  • What happens if the psychological contract is broken?
  • What has persuaded people to take the psychological contract seriously?
  • The state of the psychological contract
  • Strategic implications of the psychological contract
  • CIPD viewpoint
  • References
  • Further reading

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