Introduction

In the era of globalization, restructuring and
downsizing,  psychological contracts are
becoming ever more indispensable in contemporary employment relations. In this
ever-changing situation, the traditional long-term job security contract in exchange
for hard work and loyalty may no longer be valid (Sims, 1994). Very important
issue is the violation of the psychological contract whose probability has
increased in recent times due to sudden changes. The lack of a stable contract
and instead the constant change of it can lead to the possibility of
misunderstanding the agreement by employees and employers, thus perceiving a
non-effective violation of the contract. Given this perception of violation of
the contract of labor it is relevant to understand this phenomenon. Aim of this
essay is to understand the meaning of psychological contract and implications
of its potential violations. The importance of ethical approaches to HRM and
its way to maintain a positive psychological contract will also be addressed
through the deepening of HRM related issues.

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1. Psychological contract

The relationship between employers and employees is
defined by two different types of employment contract: the psychological
contract and the legal contract. The employment contract (technical-legal
contract) can not contain all the elements that characterize a work
relationship. It is incomplete and implicit, especially as regards the
management of the company-employee relationship. For this reason it is
important to manage in the best way what has been defined the psychological
contract.

The psychological contract has been defined by Rosseau
(1989) as ‘an individual’s beliefs regarding the terms and conditions of a
reciprocal exchange agreement between the focal person and another party’ (p.
123). This type of contract differs from the formal employment contract because
it is referred to “a set of unwritten reciprocal expectations between an
individual employee and the organization.” (Schein, 1980) (expectations of
support and stimulation of individual skills and professional potential). The
psychological contract is about “the perceptions of employee and employer, of
what their mutual obligations are towards each other” (CIPD, 2012), including
informal arrangements, mutual beliefs and perceptions between the two parties.

The psychological contract, unlike the legal contract,
has a much more fluid nature and evolves over time in relation to social and
cultural changes. Furthermore the content of the psychological contract evolves
constantly based on communication, or the lack thereof, between the two parties
of the contract, employee and employer. Such contracts are deemed to be
voluntary, subjective, informal and dynamic (Hiltrop 1996), with elements being
added and deleted over time as employee and employer expectations change
(Robinson et al. 1994; Herriot 1995). Promises over promotion or salary
increases, for example, may form part of the psychological contract. Taken
together, the psychological contract and the employment contract define the
employer-employee relationship.

1.1. Psychological Contract Breach and Trust

In addition to differing from the legal contract for
all the points explained above, the psychological contract differs from the
legal one for a really important aspect: 
procedures followed in the event of a breach of contract. Unlike the
violation of a legal contract, in which the aggrieved party may seek
enforcement in court, such recourse is not offered in case of violation of a
psychological contract; in this case the aggrieved party may choose only to
withhold contributions or to withdraw from the relationship (Spindler 1994).
Psychological contract breach is a subjective experience, referring to one’s
perception that another has failed to fulfill adequately the promised
obligations of the psychological contract (Rousseau, 1989). Being a subjective
experience, relevant is the perception of a psychological contract breach which
is based on an individual’s perception of employer’s actions or inactions
within a particular social context. Thus the experience of psychological
contract breach should depend on social and psychological factors specific to
the employment relationship in which it occurs (Morrison and Robinson, 1997).

One such factor of a particular importance is the
trust in one’s employer. Trust is the basis of relationships and contracts,
influencing each party’s behavior towards the other and one’s own
interpretation of social behaviors within a relationship. Trust is thus likely
to play a significant role in this situation: Trust in one’s employer may
influence an employee’s recognition of a breach, his or her interpretation of
that perceived breach if it is recognized, and his or her reaction to that
perceived breach (Roderick M. Kramer, 2006).

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Perceived breaches of the psychological contract can
severely damage the relationship between employer and employee, leading to
disengagement, reduced productivity and in some cases workplace deviance.

1.2 Fairness
and justice of PC

Fairness is a significant part of the psychological
contract, bound up in equity theory – employees need to perceive that they are
being treated fairly to sustain a healthy psychological contract. In the next
paragraph will be addressed issues of inequity cases.

The psychologist Adams was a pioneer in applying the
principle of fairness in the workplace. Adams (1965) maintains that employees
prefer conditions of equity in relations with the working environment, and if
there are injustices, tension is created which consequently is de-motivating
for the worker. With fairness Adams means: – there is fairness when, the
perception of the individual on the relationship between what he brings in the exchange
and what happens in the exchange coincides with the analogous relationship in
another person taken as an object of comparison (1965). According to the
theory, in order to ensure a strong and productive relationship with the
employee and consequently to maintain a positive psychological contract it is
necessary to find a fair balance between the inputs of an employee (hard work,
skill level, acceptance, enthusiasm and so on) and the outputs of an employee (
salary, benefits, intangible assets such as recognition and so on). The respect
of the equity will lead to a series of benefits such as happy and motivated
employees.

Organisational justice theory (Greenberg, 1987)
focuses on perceptions of fairness in organisations, by categorising employees’
views and feelings about their treatment and that of others within an
organisation. Literature identifies three different types of organizational
justice theory (Greenberg, 1987; Folger and Cropanzano, 1998). The distributive
justice which has at its base the perceptions about the outcomes of decisions
taken (Homans, 1961, Leventhal, 1976). Procedural and interational justice,
often treated as one in the literature, are based on perceptions about the
processes used to arrive at, and to implement, these decisions (eg Cropanzano
and Greenberg, 1997). Procedural justice focuses on employees’ perceptions of
the fairness of procedures used to make decisions (Thibaut and Walker, 1975).
On the other hand, interactional justice focuses on employees’ perceptions of the
fairness of the interpersonal treatment received during implementation (Bies
and Moag, 1986). These perceptions can influence attitudes and behaviour for
good or ill, in turn having a positive or negative impact on employees
performance and the organization’s success and consequently on the respect of
psychological contract (Baldwin, 2006). Having well-designed systems of
organizational justice lead to positive aspects for both parties, the
individual, who will be satisfied for having been treated fairly and the
organization which will keep control over potential challenges and threats from
its staff.

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