Analyzing the Dynamics of Breached Employment Contracts

Psychological Contract Theory has quickly become one of the go-to theories for understanding employment relationships. It provides an effective framework that links positively to desired attitudinal outcomes such as job satisfaction, organizational commitment and trust.

Studies investigating these links yield inconclusive and inconsistent findings; furthermore, existing literature does not contain quantitative syntheses.

Job Performance

An employment contract is a legally enforceable agreement which establishes the terms and conditions of working relationships, thereby underscoring the criticality of comprehending what contract management is. Effective contract management not only ensures adherence to these terms but also facilitates better risk management and compliance, crucial in today’s complex business environment Any breach by either employer or employee of its terms constitutes breach of contract, which could lead to legal redress for both parties involved.

Contracts typically take the form of written agreements; however, verbal and implied agreements may also exist. For optimal performance and enforceability purposes, written contracts should always be the preferred form.

For minor violations such as employers failing to pay wages on time, an informal conversation may suffice in resolving this matter. For more serious breaches however, raising a formal grievance and taking further action might be required.

Material breach of employment contract occurs when something different than promised occurs, for instance when your employer fires you before the agreed term ends or hires one of your former colleagues in violation of post-termination restrictions and agreements. When such situations arise, financial reparations in form of compensation is available as reparations.

Job Satisfaction

An employer breaching an employment contract can have serious legal repercussions for both employees and employers, potentially including compensation for lost wages as well as court orders requiring compliance with its terms.

Employers invest considerable funds into hiring, training and retaining employees. There may also be upfront expenses such as relocation expenses that must be covered. As a result, many employers require employees to sign contracts committing them to remain with the company for a certain length of time post-hiring – that way the employer can realize a return on their financial investment before employees decide to seek other opportunities elsewhere.

This study investigated the effect of psychological contract breaches and violations on various work-related outcomes. Psychological contract breach was associated with lower job satisfaction, Flourishing Scale score and affect balance, with breaches to only transactional aspects having any influence over these outcomes but not relational aspects.

Organizational Commitment

Employment contracts contain both express and implicit terms imposed by law, workplace culture, industry convention, or employer/business custom. If these terms are broken by either employee or company, legal action could ensue for breach of contract and can have severe repercussions for trust, customer/supplier relationships as well as loss of goodwill for both.

Psychological contract breaches occur when employees perceive that their employer or organization has failed to uphold its promises and fulfill their obligations, leading them to feel betrayed and develop feelings of mistrust towards it. As a result, their relationships become toxic over time.

Undergoing a takeover process exposes employees to numerous difficulties, including changes to organizational structure, temporary layoffs, job insecurity and loss of benefits such as remuneration, learning opportunities and career advancement. This study investigates how such events impact personal career behavior (PCB), which impacts in-role performance, organizational climate and turnover intentions.

Organizational Trust

Research indicates that organizational trust has major ramifications for other behaviors as well, including in-role performance and turnover intention. Although direct relationships do exist between psychological contract breach and these outcomes, their effects often involve indirect mediation by affect.

As such, management practitioners must understand the underlying mechanisms driving these relationships. A recent meta-analysis conducted by Topa and colleagues [22] discovered that psychological contract breach was found to have stronger links between in-role performance and psychological contract breach than organizational commitment, but this finding could be explained by its intense negative emotional reactions.

Breach of an employment contract may occur both through explicit terms set forth in an employment agreement and implied terms, such as laws, employer and industry custom, and obligations of confidentiality. Employees could breach contracts even after leaving employment by sharing trade secrets with competitors or even sharing personal data to gain an unfair advantage over them.