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Effects of Violating Contracts in Business Essay (Article)

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Updated: Apr 12th, 2019

A contract is a crucial requirement in the job market. It is a promise given in the present about an issue that will take place in the future. These promises are paid for goods or services. The psychological contract depicts a personal understanding of the terms and conditions of reciprocity as agreed on.

The differing interpretations of overt promises and vicarious learning influence individual beliefs. Violating a contract leads to distrust, dissatisfaction and dissolution of relationships between the parties involved. This paper summarizes Robinson and Rousseau’s study on psychological contracts and its effect on the employee-employer relationship (Robinson & Rousseau, 1994).

The study is based on the theory that psychological contract is breached when one party feels a promise has not been duly fulfilled. The unmet expectations are taken as a reflection of ethics, morals and respect leading to distrust, and this results in job and organizational dissatisfaction.

The study uses four hypotheses. The first one tested is if psychological contract violation negatively affects employee’s trust in the employer. Second hypothesis tested is if the violations negatively impact on job and organizational satisfaction.

The third hypothesis is if violations negatively influence employee’s intent to rein with the employer but positively affect the actual employee’s turnover. Lastly, the study claims that employee’s careerism moderates the relationship between violations and trust, satisfaction intent to remain and turnover (Robinson & Rousseau, 1994).

The study surveyed 128 graduate management alumni at graduation and after two years. About 54.8% of the research assistants report a breach of their psychological contracts by their employers. The research supports first and second hypothesis indicating that employee’s trust and satisfaction are negatively related to continuous and dichotomous measure of violations.

Further, the employee’s intention to remain in their current job is negatively affected by the contract violation. These violations are found to positively influence employee’s turnover, which supports the third hypothesis in such a case.

Regression of trust on violation shows that careerism results in a strong negative effect on the trust of employers following contract violation. Here, careerism is not found to regulate the relationship between contract violation and other variables. This shows that the fourth hypothesis is partially supported by the study (Robinson & Rousseau, 1994).

The study concludes that psychological contracts are often breached. This happens when the employee distrusts, dissatisfies, and intends to leave the company. However, the violations positively affect the actual employee’s turnover. Trust is a necessity in ensuring the effectiveness of an organization. Distrust leads to communication breakdown, low performance and decreased ability to find solutions.

The study has, however, number of limitations. It focuses mainly on MBA graduate students; hence generalization may not be applied to employees from other academic disciplines. Recall data used could have been erroneous as this depended on informants memory. In addition, the violation measures do not include the issue of reciprocity and the use of single-item measures in its assessments (Robinson & Rousseau, 1994).

Therefore, the methodology used in this study is well-explained. Research studies experience limitations, and this study acknowledges the loopholes it faces. A study involving diverse careers needs to be conducted in order to help apply the findings to the general population. Contract violations can negatively affect organizations in several ways.

Organizations may compromise their performance because of the poor quality of work by demotivated employee who may choose to stay. The lack of employment opportunities and the fear to venture into new opportunities are likely to cause employee’s retention alongside careerism. This study contributes to knowledge and valuable insights into psychological contracts (Robinson & Rousseau, 1994).

Reference

Robinson, S. & Rousseau, D. (1994).Violating the psychological contract: Not the exception but the norm. Journal of Organizational Behavior, 15: 245-259. Web.

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