Psychological contract

A psychological contract is an unwritten agreement between two parties, e.g. an employer and an employee, regulating behaviour. It usually contains implicit rules on values and loyalty which, although not defined in a tangible contract, must be adhered to if trust and commitment is to be maintained and nurtured between the parties.

If managed in an effective manner the relationship between the parties (more often than not applying to Employee Relations) is greatly enhanced by a mutual trust of each other. A positive psychological contract in business means that the objectives and commitments of the organisations are closely matched to those of their employees. A negative psychological contract can result in employees becoming disenchanted, unmotivated and untrustworthy of authoritarianism within an organisation - therefore resulting in an inefficient workforce heading in a different direction than the company is.