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.