Developing and maintaining a psychological contract is essential to a good employee-employer relationship, say experts from Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP).

It is extremely important to have an employment contract that captures the terms and conditions of employment with clarity and fairness. This is especially so for professionals, managers and executives (PMEs) who are not covered under the Employment Act.

That said, the employment contract should not be a substitute for the real relationship between an employer and employee.

What cements this relationship is the “psychological contract”. This refers to the unspoken beliefs, expectations and perceived obligations between the employer (management, HR, supervisors) and the employee.

It is distinct from the formal employment contracts. These tend to be informal and dynamic, and are based on factors, including past interactions and professional norms.

The importance of psychological contracts

A psychological contract governs the relationship between an employer and employee over time.

The fulfilment of the psychological contract usually builds an employee’s trust, creates feelings of being valued, and results in positive outcomes for both the employee and employer.

A breach of the psychological contract is said to occur when an employee believes the employer has failed to deliver on one or more promises or obligations, both implicit and explicit.

This breach exerts a negative influence on the employee’s attitude and behaviour. Very often, it leads to disengagement which in turn, affects job satisfaction, productivity, performance, loyalty of the employee, and eventually, the bottom line for the employer.

Strategies to prevent a psychological contract breach

To prevent a breach from occurring, organisations need to uphold their promises made to their employees and this begins at the recruitment stage. Clear and realistic job requirements should be communicated upfront so the potential candidate understands what the employer’s expectations are and what to expect from the employer in return. By having these open and honest discussions about mutual expectations and going beyond the contract, employers can build trust and also reduce the potential of misperception of promises and obligations.

In addition, employers should also garner their employees’ views when developing new policies and practices. By doing so, employers are in a better position to manage expectations and prevent a breach from occurring.

Given the nature of the business environment and changing expectations between employees and employers, developing and maintaining a psychological contract is essential to fostering a good employee-employer relationship.

It is also important to recognise that employees cannot be managed simply through written contracts alone. Organisations should instead go beyond employment contracts, and build an environment of respect and dignity in order to gain employees’ trust.

TAFEP holds regular workshops to help employers and HR professionals keep abreast of HR best practices. Visit to find out more.