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Psychological Contract Between the Employer and the Employee


The psychological contract between the employer and the employee can be understood as an unwritten agreement, the formal definition of which can vary, but mostly revolve around expectations and beliefs regarding terms of an exchange agreement between the employee and the organization (Maguire, 2004). Accordingly, the agreement is not a necessary component of such contract, where the parties, i.e. the employer and the employee, believe that there is an agreement based on their perception, while at the same time they might “hold different beliefs regarding the existence and terms of a psychological contract” (Conway and Briner, 2005). In that regard, it should be mentioned that the constant changes in the economy, markets, competition, and other external and internal factors lead to psychological contracts change as well. In the light of the aforementioned, this paper examines the changes in the psychological contracts and identifies the potential implications in the context of career management.

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One of the most important changes, specifically considering the recent financial crisis, is the change resulted from the economic downturn. The impact on psychological contracts can be seen in the way employees are less willing to change jobs, “preferring their current job security to career development elsewhere” (Furness, 2008). Accordingly, it can be stated that in such a case, it can be assumed that the contract is favored toward employers, rather than employees.

Another change that can be witnessed with the increased shift toward the virtual workplace is the change in the psychological contracts for virtual employees. Virtual work is rather a new phenomenon, and its psychological contracts were not yet fairly established in theory. Nevertheless, the main principles of the dependence in psychological contracts were outlined, which can be explained through such factors as flexibility in managing personal needs, and the threats to virtual work arrangements (Toppin).

Finally, the major shift in several characteristics simultaneously can be seen in a combination of elements that form the new psychological contract. It should be noted that such forms of such a contract can be understood in conditions before the economic downturn and the financial crisis, and can be assumed to be in effect after the financial situation would be stabilized. The main provisions of the new contract imply such elements as:

  • Creating opportunities for the employees to take care of themselves
  • The work is mutually beneficial
  • The flow of people in and out is celebrated
  • Short-term employment
  • The growth of the employees is based on personal accomplishments (Maguire, 2004)


The main implications of the economic downturn, as the most current change in psychological contracts, can be seen in the shift of employers toward cost reduction, and thus giving more focus on the employees’ obligations, rather than employers. Another possible implication can be seen in the possibility of a shift toward a performance-based reward culture (Furness, 2008).

Implications of the virtual workplace psychological contract for the employees can be seen in shifting toward having more control over one’s life, and the acknowledgment of the power in the collective voice of the workforce. For employers, and specifically for HR managers, the implications might include the obligations of providing support for the virtual workplace arrangements, outlining a process for such arrangements, supporting the employees’ desire for control over their lives, and focus on training and development.

Implications of the new psychological contract might include the organizations taking a relational approach to managing careers by providing opportunities and resources for the individuals to manage their careers, and emphasizing effectiveness in contract renegotiations, and minimizing risks of contract violation (Atkinson)

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It can be concluded that changes are inevitable aspects in the formation and the content of the psychological contracts. According to these changes, the perception regarding loyalty and responsibility can be changed by both employees and employers. Nevertheless, the general trends can be seen in giving more control to employees to manage their own careers.


ATKINSON, C. Career management and the changing psychological contract. Career Development International, 7, 14-23.

CONWAY, N. & BRINER, R. B. 2005. Understanding psychological contracts at work : a critical evaluation of theory and research, Oxford; New York, Oxford University Press Inc.

FURNESS, V. 2008. Impact of economic downturn on psychological contract between employer and employee [Online]. Employee Benefits. Web.

MAGUIRE, H. 2004. The changing psychological contract: challenges and implications for HRM, organisations and employees In: WIESNER, R. & MILLETT, B. (eds.) Human Resource Management: Challenges and Future Directions. John Wiley & Sons.

TOPPIN, L. M. Defining the psychological contract of the virtual worker: Implications for the human resource professional. ProQuest Dissertations and Theses [Online], 0454. Web.

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StudyCorgi. (2021) 'Psychological Contract Between the Employer and the Employee'. 7 November.

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