The Employer-Employee relationship is at the core of any workplace. It needs to be a positive relationship where there is potential to grow and develop. Healthy relationships between employers and their employees have been shown to generate numerous benefits for companies. Any healthy relationship can be thought of as a psychological contract between two parties - so what exactly is a psychological contract?

A psychological contract is an unwritten set of expectations of the employment relationship, distinct from the formal employment contract. The psychological contract and the employee contract together make up the full employer-employee relationship.
By maintaining healthy psychological contracts, companies can increase performance, attract and retain talent, increase employee morale, and improve teamwork.

A psychological contract includes informal arrangements, mutual beliefs, common ground, and perceptions between the employer and employee. This contract is constantly developing and strongly depends on the communication between the employer and employee.
It is critical that employers set firm yet fair expectations and monitor such expectations to see that they are being met. Employees should do the same; manage the expectations set by their employers so that if and when adverse personal problems or circumstances arise and that may affect productivity, they are handled properly and not seen by management as deviant. Fairness is a key element of successful psychological contracts under the idea of equity theory. That is, employees need to perceive that they are being treated fairly to sustain a healthy psychological contract.

Sustaining a healthy psychological contract in the workplace is essential. Breaches in the psychological contract can deeply damage the employer/employee relationship which can lead to disengagement, reduced productivity, and in some cases workplace conflict.

An open channel, in which both parties are willing, able, and encouraged to communicate is necessary to not only establish a strong psychological contract, but also to sustain such a contract. Most importantly; respect, compassion, trust, empathy, fairness, and objectivity are the fundamental qualities required by both employer and employee, for healthy psychological contracts in the workplace.