Psychological contract (PYC) is about the exchange relationship between employees and employer. The relationship is based on an exchange in which each party will exchange something they can provide for something the other party can provide (Conway, N & Briner, Rob. B, 2005). Define what individuals expect to contribute to the organization and what they expect to receive in return.

PYC is more subjective than a legal contract. It has been distinguished from the broader construct of expectations. PYC has emerged as an important construct to explain the changing nature of the employment relationship. (Pate, J, 2006).

The importance of PYC (Cyril van de Ven, 2004) :

The function is reduction of insecurity – the psychological contract fills the gaps in the relationship not written in formal written contract;

PYC shapes behaviour – Employees weigh obligations towards the organization against the obligations of the organization towards them and adjusts their behaviour on the basis of critical outcomes; and

Gives employees a feeling of influence – what happens to them in the organization and how they can survive.

A breach of Psychological contract occurs similarly ‘when one party in a relationship perceives another to have failed to fulfill promised obligations (Robinson and Rousseau,1994). Psychological contract violation occur when people think they are not getting what they expect from a contractual agreement (Morrison and Robinson,1997).

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