Employment Relationship

What are the main arguments supporting the view of the psychological contract as a 'potentially useful analytic framework' (Guest, 2007) through which to understand the employment relationship?

In 1989, organisational scholar Denise Rousseau published “Psychological and Implied Contracts in Organisations” in the Employee Responsibilities and Rights Journal. The article typifies the ‘psychological contract’ as the informal, unwritten agreement between employers and employees. It also theorises how employment relationships are formed, maintained, and incrementally changed (Rousseau, 1989).

David Guest outlines three supportive arguments for the ‘psychological contract’ as a potentially helpful framework for understanding the employment relationship (Guest, 2007).

1. ‘The deal is changing’. This indicates changes to the psychological contract as prior assumptions and expectations of employment relationships evolve (Guest, 2007). For example, modern and traditional workplaces can be juxtaposed by varying degrees of anticipated variable and invariable factors. Modern expectations generally prioritise work-life balance, meaningful work, and flexible work arrangements over the traditional expectations of job security, loyalty, and well-defined career progression. This is useful because it underscores the changing nature of the employment relationship as an ongoing dialogue rather than statically predetermined.
2. ‘Widespread organisational change impacts employee commitment’. Organisational change is more frequent today due to many disruptive factors such as technology, market conditions, and competition. Consequentially, employees may feel their unwritten agreements with an employer are no longer synchronising with new conditions (Guest, 2007). This risks potential infringements or encroachments of the psychological contract, which, if contextually understood, might be mitigated by involving employees in change processes.
3. ‘Increased local management’. The traditional psychological contract could be interpreted as predicated on generalised or uniform assumptions of the employment relationship (i.e., standard employment policies and benefits) (Guest, 2007). However, modern workforces are typically more diverse and require bespoke or flexible arrangements. This presents an opportunity to reinforce the employment relationship by local managers negotiating, managing, and redefining more appropriate expectations.

Do these arguments sound convincing?

While Denise Rousseau’s ‘psychological contract’ can contextualise the employment relationship, credible limitations emerge if the concept is uncomplemented by other analytical frameworks. Within the context of the main arguments outlined by David Guest, three associated drawbacks are worthy of consideration (Guest, 2007).

1. Supposing the nature of employment relationships is characterised by fluctuation, the framework offered by the ‘psychological contract’ is acutely subjective in defining what employees’ experiences and expectations genuinely are. The concept is tested further when specifying these expectations, how they evolve, or the appropriate pace to adopt policies and practices (Cullinane and Dundon, 2006).
2. While the impact of organisational change is far-reaching when met by the forces of new technology and market changes, the ‘psychological contract’ has little predictive power (Cullinane and Dundon, 2006). How employee factors such as social norms, cultural values, or individual expectations intersect with such changes remains unarticulated. The concept is strained further when elucidating other critical phenomena and complex issues (i.e., productivity, turnover, and job satisfaction).
3. Following the idea that employment relationships are uniquely personalised, it becomes incredibly challenging for HR to ensure they are fair and consistent with the organisational objectives. Compounded by the lack of definition, means to identify or measure the effectiveness of the psychological contract, it is unclear how each would be managed in practice (Cullinane & Dundon, 2006). Limited applicability intensifies when met with freelance or gig workers who carry other obligations.