On its own, the legal contract of employment offers a limited representation of the employment relationship, with employees contributing little to its terms beyond accepting them. In this sense, the psychological contract may be more influential as it governs the perceptions of the employer-employee relationship and influences how employees behave from day to day. At its core, the psychological contract is built on the everyday actions and statements made by both parties – the expectations and promises that anchor both positive and negative perceptions. It is intangible in nature – quite unlike the legal contract of employment signed by employers and employees.
This factsheet explores contemporary definitions of the psychological contract within the context of the 21st century employment relationship. It identifies ways that managers can bolster the psychological contract by listening to employees’ opinions and managing expectations effectively. The factsheet also considers the impact of the psychological contract on broader organisational strategy.