The Psychological Contract: The Unwritten Deal Behind Every Resignation

Every employment relationship has two contracts. One is written, signed and enforceable. The other exists in the minds of the people involved: a set of beliefs about what each owes the other. The second, which researchers call the psychological contract, has no legal force. It has at least as much influence on how people behave.

Many of the situations covered in the HR Psychology hub, such as the disappointing pay rise, the missed promotion and the layoff witnessed by those who stay, are at root breaches of this unwritten contract. This closing guide explains what it is, how it gets broken and how to manage it.

What is the psychological contract?

The term was used by Chris Argyris in 1960 and developed by Edgar Schein. Its current form owes most to Denise Rousseau, who defined the psychological contract as an individual’s beliefs about the terms of a reciprocal exchange between themselves and their organisation.

Several features of that definition matter.

It is a belief, held by an individual. The contract exists in the employee’s mind. The organisation, or more exactly its various managers, may hold a different version or none.

It is about perceived promises. It is more than hopes. The employee believes that commitments were made, explicitly or implicitly, and that they have given something in return.

It is reciprocal. “I work hard, stay loyal and go beyond my job description. In return I get security, development, fair pay and respect.”

It is largely unwritten and often unspoken. It is built from what was said in interviews, what managers hinted, what the careers page claims, how colleagues are treated and what has always been done.

Isabel’s psychological contract contained rapid promotion, international work and autonomy. Her written contract contained none of them.

Where does it come from?

From every signal the organisation sends, whether intended or not.

Recruitment is the largest single source of later trouble. Both parties are selling. The candidate presents their best self, and the employer presents its best version of the job. The psychology of that stage is discussed in job offer psychology. Promises made to secure an acceptance become terms of the psychological contract on day one.

What kinds of psychological contract are there?

Rousseau distinguished two main types, which lie at either end of a spectrum.

Most relationships combine the two. The distinction matters because of what happens after a breach. People with relational contracts, who are often the most committed employees, react most strongly, because for them the breach is a betrayal and not just a shortfall. A typical response is to move toward a transactional stance: “I’ll do what I’m paid for and nothing beyond it.” That is where Isabel has arrived. The popular term for it is quiet quitting.

How common is breach?

Very common.

Later research using diary methods suggests that small breaches are an everyday occurrence. Most are minor and are absorbed. The psychological contract is revised continuously. What counts is the size of the breach, what it concerns and how it is dealt with.

What is the difference between breach and violation?

Elizabeth Wolfe Morrison and Sandra Robinson drew a distinction in 1997 that has practical uses.

Breach is the cognition: the recognition that the organisation has not delivered something the employee believed was promised.

Violation is the emotion that may follow: anger, a sense of betrayal, a feeling of having been wronged.

Not every breach becomes a violation. Whether it does depends on how the employee interprets it.

They identified two origins of breach. Reneging is where the organisation knowingly fails to keep a promise, because it cannot or will not. Incongruence is where the two sides honestly understood the promise differently. The new manager who has never heard of the eighteen-month route is a case of incongruence that feels, to Isabel, like reneging.

Interpretation turns on attribution and on fairness. A breach seen as beyond the organisation’s control, explained honestly and handled with respect is far less likely to produce a sense of violation than one seen as deliberate and delivered carelessly. This is the fair process effect described in our guide to organisational justice.

What are the consequences of breach?

Broad and well documented.

Behaviourally, responses to breach are often described with a framework adapted from the economist Albert Hirschman.

• Voice. Raising the matter and trying to get it put right. Constructive, and dependent on believing it is safe and worthwhile.
• Loyalty. Waiting and hoping things will improve.
• Neglect. Reducing effort, withdrawing discretionary contribution, doing the minimum.
• Exit. Leaving.

Managers often do not notice neglect, or misread it as loss of motivation. Isabel has “lost her spark”. In her own view, she has adjusted her contribution to what the company turned out to be offering, which is equity theory in action, as described in pay raise psychology.

A breach is frequently the shock that begins the process of leaving described in the unfolding model of turnover. And because the contract is unwritten, it will rarely appear in an exit interview; see exit interview psychology.

How can organisations prevent breaches?

By making fewer promises they cannot keep and by making the unwritten contract more explicit.

Recruit honestly. A realistic job preview, a candid account of the job including its drawbacks, lowers initial expectations to an accurate level. Research on realistic job previews, including a meta-analysis by Jean Phillips, finds that they are associated with lower turnover and somewhat higher performance. They work by letting poorly matched candidates select themselves out and by removing the gap between promise and reality.

Brief hiring managers. Make sure managers know what they may and may not promise. “Promotion within eighteen months” is a commitment that only the organisation can honour.

Record what was promised. Not everything belongs in the contract, but a brief written note of what was discussed about development, flexibility and progression survives a change of manager.

Talk about expectations. In onboarding and at regular intervals, ask directly: “What did you expect when you joined? What do you think we owe each other?” The conversation brings mismatches to light before they become breaches.

Take care with employer branding. Claims about values and culture are read as promises. Do not make ones you would not want quoted back to you.

What do you do when the deal has to change?

Circumstances change, and organisations have to change with them. Travel budgets are cut, working patterns alter, progression slows. The psychological contract cannot stay fixed. The question is whether it is renegotiated or simply broken.

The most damaging approach is to change the terms without acknowledging that there was an understanding. “Nothing in your contract entitles you to travel” is legally accurate and a psychological disaster. It tells the employee that only the written contract counts, and they will apply that lesson in the other direction too, giving exactly what is written and no more.

How do you repair a breach?

If you learn that someone believes a promise has been broken, three things help.

Find out. You cannot repair what you do not know about. Regular one-to-ones in which people are able to say that they are disappointed are the main means of detection. A manager’s question, “Is the job turning out the way you expected when you joined?”, is often enough.

Acknowledge it. Even if the organisation was within its rights and the promise came from someone who has since left. “I can see that you were told something different when you joined, and that what has happened isn’t what you signed up for.” Arguing over whether a promise was technically made misses the point. The belief is real, and so are its effects.

Renegotiate. Be honest about what is no longer possible. Then ask what matters most to the person now and what you can offer. A new, explicit understanding, even a more modest one, is better than a broken implicit one.

Sincere apology has an effect. Research on trust repair finds that acknowledgement of responsibility together with concrete corrective action restores trust more effectively than explanation or compensation alone.

Why does this tie everything together?

Because each HR process covered in this hub is, among other things, a moment at which the psychological contract is tested. A hiring process sets its terms. A pay review either confirms or contradicts the belief that contribution is rewarded. A promotion decision tests the belief that effort leads somewhere. Feedback tests whether the organisation is honest. Discipline tests whether it is fair. A redundancy tests whether loyalty runs in both directions. And the manner of a person’s departure tells everyone still there what the deal really is.

Organisations that handle these moments well seldom have unusually generous terms. They are clear about what they are offering, keep their word on the things that matter and say so honestly when the terms have to change.

Isabel took the other job. In her last week, her manager asked, with real puzzlement, what the company could have done differently. She thought about it and said: “You could have told me, two years ago, that the things I joined for had gone. I would probably have stayed and helped you get them back. What I couldn’t do was keep pretending not to notice that nobody had mentioned it.”

Frequently asked questions