Creating psychological and legal contracts through human resource practices: A signaling theory perspective

Despite the surge in research on the psychological contract over the past two decades, there has been little integrative research that has examined psychological contracts in conjunction with legal contracts. We address this shortcoming by presenting a framework for understanding the differences between psychological contracts and legal contracts in the United States. This is done by presenting definitions and examples of psychological contracts (i.e., relational and transactional) and the two forms of legal contracts: (a) express (written and oral), and (b) implied (quasi-contract and promissory estoppel). In addition, by utilizing signaling theory [Rynes, S.L. (1991). Recruitment, job choice, and post-hire consequences: A call for new research directions. In M. D. Dunnette & L. M. Hough (Eds.), Handbook of industrial and organizational psychology, (pp. 399–444). Palo Alto, CA: Consulting Psychologists Press.], we describe the means by which human resource practices such as recruitment, training, performance appraisal, compensation, and employee handbooks can create psychological and legal contracts. We conclude by proposing directions for future research and implications for practicing managers.     

Psychological contracts and reciprocity: a study in a Finnish context

Existing research has demonstrated how the norm of reciprocity operates as a general principle in exchange relationships. However, limited explicit theoretical and empirical attention has been paid to its role in the functioning of the psychological contract. Using a sample of Finnish public sector employees, this study investigated the impact of perceived employer fulfilment of psychological contract on employee perceptions of the form of reciprocity underlying the exchange relationship. The potential mediating role of the reciprocity perceptions between perceived contract fulfilment and its outcomes (affective commitment, continuance commitment and intention to leave) was also examined. The results show that perceived employer fulfilment is positively associated with employee perceptions of the generalized form of reciprocity, and negatively with perceptions of the balanced form of reciprocity. Further, perceptions of generalized reciprocity were found to mediate the relationship between perceived contract fulfilment and affective commitment and intentions to leave the organization. Results and implications are discussed.     

Balancing psychological contracts: Validation of a typology

In this study, a psychological contract typology based on both content and exchange balance was developed. Content was defined along the transactional-relational dimension. Balance was assessed by comparing employees' perceptions on the number of employees' obligations relative to employer's obligations. Furthermore, the typology was related to type of employment contract (temporary versus permanent) as perhaps the most important antecedent of psychological contracts, and to various psychological consequences (job satisfaction, life satisfaction, organizational commitment, and psychological contract violation). Results were based on Belgian and German data (N = 1267). Latent Class Analyses suggested four psychological contract types which are clearly distinct with regard to content terms and exchange balance: mutual high obligations, employee over-obligation, employee under-obligation and mutual low obligations. Temporary workers were more likely to hold psychological contracts with few employer obligations, such as the mutual low obligations and the employee over-obligation type. Finally, the mutual high obligations type was most beneficial in terms of psychological outcomes. Implications for future research are discussed.     

From Quality Circles to Self-Managed Work Teams: Are Employee Teams Legal in the United States?

This paper focuses on the legal status of employee teams, such as quality circles, that are commonly used within organizations in the United States. At present, the National Labor Relation Act (the Act), which governs labor–management relations, also has direct implications for the types of employee teams that can be legally implemented within organizations. This paper reviews the governing sections of the Act and analyzes how they apply to the use of employee teams. Suggestions for avoiding or dealing with illegally formed employee teams are offered.     

Changes in psychological contracts during the global financial crisis: the manager's perspective

The employee–organisation relationship is dynamic and arguably affected by contextual factors, such as a change in the economic environment. This study uses data collected from managers in Australia before and after the beginning of the global financial crisis (GFC) to examine the changes in psychological contract (PC) terms from the manager's perspective. In particular, as industries can be affected differently by economic crisis and gender discrimination can increase in tough economic conditions, we examined if any changes in PC terms were contingent on industry and employee gender. The study's results show that the terms of the employment relationship deteriorated in Australia only for employees working in industries affected by the GFC. Further, we found that some gender differences in the terms of the PC exist independent of the state of the economy. In addition, a three-way interaction indicates that managers working in industries not affected by the GFC are allocating a greater proportion of their resources to their female employees than to their male employees. Ongoing labour shortages and gender inequities in Australia might have prompted managers in non-affected industries to use their relative ‘resource-rich’ advantage to positively influence the employee–organisation relationship for female employees, a traditionally disadvantaged group.     

On-duty and Off-duty: Employee Right to Privacy and Employer’s Right to Control in the Private Sector

The changing legal landscape of the right of the employer to control and monitor employee behavior is examined. Two distinct areas are defined: behavioral monitoring and behavioral restrictions. Relevant statutory laws and the developing common law are discussed. We also examine potential employee reactions to such policies by evaluating the reactions of graduate students to six employer policies including weight restrictions, grooming requirements, use of GPS locators, drug testing, ban on off-duty smoking, and email and internet monitoring. Students responded to these policies by determining the reasonable interest of the employer in the behaviors being monitored or controlled and the manner in which policies were implemented. Their comments suggest that employees may accept some level of monitoring or behavioral restrictions if the employer can make a convincing social account of the need for a policy. Additionally, the policy must be clearly communicated and properly implemented. However, restrictions on off-duty behavior were typically poorly received with the exception of illegal drug use.     

Ideological currency in psychological contracts: the role of team relationships in a reciprocity perspective

This study focused on the role of ideology in psychological contracts, which has been a neglected theme in psychological contract research. A study among Dutch middle managers in education revealed that ideological psychological contract fulfillment explained additional variance in relation to employee obligations toward the organization. Moreover, it was found that team relationships moderated the relations between some aspects of employer contract fulfillment and employee obligations, but no significant interactions were found between employer ideological fulfillment and team relationships in relation to employee obligations.     

Marketing charitable bequests to lawyers

There is scant literature about the role of the lawyer in influencing the likelihood of a charitable bequest being made in a will. Charities regularly advertise in legal journals and supply bequest materials to lawyers, but the effectiveness of these strategies for influencing lawyers appears not to have been measured in the literature or in practice. Our exploratory research indicates that specialist estate lawyers report that they pay little or no attention to traditional marketing of charitable bequests to them and that lawyers' specific information needs from charities about bequests are not being satisfied appropriately. Our study reveals that lawyers do seek information from charities in order to write a will's bequest clause, once a bequest has been considered by the client. Lawyers indicated frustration with obtaining this information from charities, and we recommend some actions for charities to rectify this situation. Recommendations for enhanced bequest solicitation are made together with suggestions for pathways for future bequest research involving lawyers. Copyright © 2011 John Wiley & Sons, Ltd.     

Inducements,contributions, and fulfillment in new employee psychological contracts

This longitudinal study of newly hired Chinese college graduates (N = 143) investigates the effects of contract fulfillment, employee reports of company inducements (organizational support and job rewards), and supervisory reports of individual contributions (job performance and extra‐role citizenship behavior) upon changes in the graduates' psychological contracts. Three survey waves were administered a year apart, starting with the recruits' job offer acceptance. Analyses revealed that employee fulfillment and perceived contributions predicted particular changes in employer psychological contract obligations, whereas employer fulfillment and perceived inducements predicted changes in employee obligations. The effects of inducements on employee obligation changes and contributions on employer obligation changes were mediated by their respective fulfillment measures. Changes in obligations were greater in the first year of employment than in the second. This study yields implications for managing newcomers and researching the initial phase of employment. ©2011 Wiley Periodicals, Inc.     

Auditor independence,incomplete contracts and the role of legal liability

We develop a model in which there is conflict of interest between the management and the shareholders of an organization. Incompleteness of contracts prevents a simple contracting solution to this problem. We suggest that auditors can play a role in aligning the conflicting interests. However, this result is dependent on auditors maintaining independence from management. Again however, incompletenesses in contracting causes difficulties because it may be hard to ensure that auditors maintain this required independence. In this context, the imposition of potential legal liability (punishment) on the auditor, may be an important commitment mechanism for the auditors, making it credible that they will not collude with the management. In order to give our model institutional structure we study how this collusion may take place through the reappointment concerns of the auditor. In the reappointment game, we consider how legal liability levels could be chosen so that it becomes credible to expect that auditors will not implicitly collude with management and provide a low duty of care.     

The effects of income taxation on severance pay

Severance pay often results from a bargain between the firm and the employee to avoid or terminate a legal conflict. We theoretically investigate how income taxation affects these negotiations. Using panel data from West Germany and exploiting a change in tax law in 1999, we find that a higher income tax on severance pay reduces the probability of obtaining it and – in some specifications – also lowers its amount. Our results imply overshifting of the increase in the tax burden.     

The Impact of Employee Share Ownership Plans On Employee Participation and Industrial Democracy

This article examines employee participation in recently-formed employee share ownership plan organisations (ESOPS) in the UK. the various legal/institutional forms of ESOP are outlined prior to considering the nature and determinants of participative institutions and processes. It is suggested that there are three ‘constellations’ of ESOP in terms of employee participation:‘technical ESOPS’, ‘paternalist ESOPs’ and ‘representative ESOPs’. There are relatively few innovations in participation in the first of these, while in paternalist ESOPs, innovations centre on individualistic forms of participation and communication at the level of the workplace. In representative ESOPs employees gain more of a say in strategic decisions through such innovations as employee representation on company boards. It is argued that these differences in the nature of participation are due neither to differences in legal structure nor to variations in the extent of employee share ownership. Instead, participative systems are viewed as the outcome of the philosophies and objectives of those involved in the conversion to employee ownership.     

Worker responses to teamworking: exploring employee attributions of managerial motives

This paper examines employee views of why and how managers introduced teamworking at several sites within a steel company. Following a content analysis of employee comments we classify employee views of management motives into four main types: economic, political, institutional and cultural. Employees reported that managers were primarily driven by political rationales and implemented teamworking for reasons of self-interest. The economic rationales for management action were interpreted negatively as favouring shareholders and increasing worker insecurity. The introduction of teamworking also appeared to require a concerted attempt to enforce employee compliance, indicating that culture change was also an important factor. The views employees expressed of management intent are not adequately described by either recent advocates of high performance work systems or the critical perspective on human resource management although they appear central in understanding employee responses to management initiatives in these sites.     

Changing Organizational Forms and the Employment Relationship

This paper draws upon new research in the UK into the relationship between changing organizational forms and the reshaping of work in order to consider the changing nature of the employment relationship. The development of more complex organizational forms – such as cross organization networking, partnerships, alliances, use of external agencies for core as well as peripheral activities, multi‐employer sites and the blurring of public/private sector divide – has implications for both the legal and the socially constituted nature of the employment relationship. The notion of a clearly defined employer–employee relationship becomes difficult to uphold under conditions where employees are working in project teams or on‐site beside employees from other organizations, where responsibilities for performance and for health and safety are not clearly defined, or involve more than one organization. This blurring of the relationship affects not only legal responsibilities, grievance and disciplinary issues and the extent of transparency and equity in employment conditions, but also the definition, constitution and implementation of the employment contract defined in psychological and social terms. Do employees perceive their responsibilities at work to lie with the direct employer or with the wider enterprise or network organization? And do these perceptions affect, for example, how work is managed and carried out and how far learning and incremental knowledge at work is integrated in the development of the production or service process? So far the investigation of both conflicts and complementarities in the workplace have focused primarily on the dynamic interactions between the single employer and that organization’s employees. The development of simultaneously more fragmented and more networked organizational forms raises new issues of how to understand potential conflicts and contradictions around the ‘employer’ dimension to the employment relationship in addition to more widely recognized conflicts located on the employer–employee axis.     

Preconditions for public sector e-infrastructure development

Interoperability in e-government has been recognized as a key factor in the quest of administrations at national, local and international level to achieve the provision of one-stop services to citizens and businesses. Interoperability in e-government should enable efficient information exchange between applications from different agencies with the help of IT-services. Interoperability in networked IT-service delivery is accomplished by e-infrastructures. However, knowledge of how to develop e-infrastructures in the public sector is still limited. In this paper we report a design science case study of the initial stage of the design of a public sector e-infrastructure in the social welfare sector, especially addressing the bootstrap problem, i.e. the initial problem of starting-up the development of an e-infrastructure. Six types of preconditions for the development of the e-infrastructure are examined and explained: legal, economical, organizational and the installed base of the as-is e-infrastructure consisting of technical, informational and contractual preconditions. From a design and action oriented perspective we claim that a basic understanding of the design context, within which the six types of preconditions have to be analyzed and understood, are essential for e-infrastructure development in an e-government context. The paper highlights the fundamental role of regulations as a precondition for the design, and the fundamental role of lawyers as designers of e-infrastructures in the public sector.     

Linking strategy and human resource practices: How employee and customer contracts are created

Organizations implement their business strategies through the human resource (HR) practices they use. These practices are major determinants of employees' psychological contracts. How employees interpret the terms of their employment impacts motivation, innovation, and customer service. This article describes four common types of psychological contracts in US firms and the HR practices that create them. It develops a framework for understanding how each contract shapes employee performance, retention, cooperation with fellow employees and customer responsiveness. It presents recommendations for more effectively managing the link between business strategy and the psychological contract of employees. © 1994 by John Wiley & Sons, Inc.     

On optimality of illegal collusion in contracts

Illegal collusion is a widespread phenomenon all around the world. Yet, models of hierarchical agency relationships tend not to predict collusion. This paper demonstrates that a natural requirement of interim efficiency suffices for collusion to appear in equilibrium in a simple standard setting. The optimal extent of collusion depends on the efficacy of the legal system. When the transaction costs associated with illegal deals are small enough, inducing some illegal collusion between the agent and his supervisor increases the principal's payoff. Received: 9 December 1996 / Accepted: 11 April 1998     

Allegiance to company or conscience: The case of harding engineering corporation

Employees are sometimes forced to choose between meeting professional responsibilities or following their conscience. Following is a situation where an employee must decide upon a course of action that could potentially cause personal and professional damage to a fellow employee, or possibly harm the company. Several important issues arise as a result of the dilemma-confidentiality, professionalism, legal rights, agency loyalty, personal values, business ethics, to name some. A thorough analysis of the situation will provide a rich opportunity for discussion and learning.     

How mass layoffs are related to lower job performance and OCB among surviving employees in Chile: an investigation of the essential role of psychological contract

This study aimed to investigate how mass layoffs impact surviving employees in organizations. More specifically, this study ascertained the relationships between mass layoffs and employee work behaviors. It was theorized that mass layoffs will be negatively related to employee performance and organizational citizenship behaviors (OCB) through its relationships with job insecurity and psychological contract breach. Moreover, it was expected that perceived manager support would buffer against the negative relations of contract breach with employee performance and OCB. A study among 615 employees in multiple Chilean organizations showed support for the hypotheses: job insecurity and psychological contract breach mediated the relationships between mass layoffs and employee performance and OCB. We also found moderating relationships of manager support, but the relations of breach with performance and OCB were particularly negative when manager support was high, indicating feelings of betrayal among high-support employees in response to contract breach. Moreover, the relation of contract breach with performance was positive for low-support employees, and non-significant for high-support employees. Our study advances understanding of the processes underlying how mass layoffs influence employee behavior in the workplace, through introducing the psychological contract as a way of understanding the relationships.