A psychological contract is a set of unwritten rules and norms that employees are expected to follow by the employer. The expectations put together with the formal, written rules, define the relationship between the two parties. Psychological contracts include shared beliefs, and perceptions between the employee and employer. For example, in some organizations employees stay back after office hours even if they do not need to because it is believed to portray them as hardworking.
In such organizations if an employee leaves on time he/she may be regarded as less loyal than those who stay back. The psychological contract develops over time through observation and communication and is therefore important to ensure that the wrong messages are not conveyed to the other party.
Non fulfillment of a psychological contract can lead to misunderstandings and damage of the relationship. This can be avoided through managing the psychological contract by being explicit of one’s expectations and views.