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Types of employment contract

The employment relationship can be defined by two types of contracts: relationship contracts (defined by MacNeil in 1985) and transactional contracts (defined by Rousseau and Wade-Benzoni in 1994).

Relational contracts

The relational contract is characterised by three elements (Kessler and Undy 1996):

  • The behavioural element: the everyday exchange of relations and transactions by an employee and an employer
  • The legal element: set out by the laws of the country where that behaviour takes place
  • The scholar element: relating to the legal scholarship of the behaviour

This type of contract is mostly informal and refers to an open-ended membership of the organisation, with ambiguous performance requirements.

Transactional contracts

Transactional contracts are formal contracts with well-defined features, such as:

  • Job or role description
  • Type of contract
  • Salary – the intervals at which salary is paid (eg weekly/monthly)
  • Hours – hours of work and normal working hours
  • Holidays – entitlement to holidays, including public holidays
  • Sick leave – provision of sick pay, if any
  • Pensions and pension schemes
  • Policies and procedures
  • Notice period – the length of notice the employee is obliged to give and is entitled to receive to terminate their contract of employment

Psychological contracts

An implied rather than stated type of contract is the psychological contract. There are divergent views on whether the concept of psychological contract is rooted in expectations, promises or obligations of the other party (Pate and Scullion 2018). A number of definitions of a psychological contract can be found in the literature. Some examples include:

…the set of expectations held by the individual employee that specify what the individual and the organisation expect to give to and receive from each other in the course of their working relationship.

(Sims 1994: 375)

…what employees are prepared to give by way of effort and contributions in exchange for something they value from their employer, such as job security, pay and benefits or continuing training.

(Newell and Dopson 1996: 4)

Tetrick (2012) highlights that understanding emotions at both the individual and collective level are crucial for the employee-organisation relationship, as can be seen as an underlying framework for understanding individual and organisational health.

Your task

Locate an example of an employment contract and post a link to it in the comments area.

In the comments area, also describe its main features.

Share some examples with your peers.


Kessler, I., and Undy, R. (1996) The New Employment Relationship: Examining the Psychological Contract. London: Institute of Personnel and Development

Macneil, I.R. (1985) ‘Reflections on Relational Contract’. Zeitschrift für die gesamte Staatswissenschaft /Journal of Institutional and Theoretical Economics 141 (4)

Newell, H., and Dopson, S. (1996) ‘Muddle in the Middle: Organizational Restructuring and Middle Management Careers’. Personnel Review [online] 25 (4). available from https://locate.coventry.ac.uk/primo-explore/fulldisplay?docid=TN_proquest33287585&context=PC&vid=COV_VU1&search_scope=Primo_Central&tab=remote&lang=en_US [10th May 2019]

Pate, J., and Scullion, H. (2018) ‘The Flexpatriate Psychological Contract: A Literature Review and Future Research Agenda’. The International Journal of Human Resource Management [online] 29 (8). available from https://locate.coventry.ac.uk/primo-explore/fulldisplay?docid=TN_tayfranc10.1080/09585192.2016.1244098&context=PC&vid=COV_VU1&search_scope=Primo_Central&tab=remote&lang=en_US [10th May 2019]

Rousseau, D., and Wade-Benzoni, K. (1994) ‘Linking Strategy and Human Resource Practices: How Employee and Customer Contracts Are Created’ Human Resource Management [online] 33 (3). available from https://locate.coventry.ac.uk/primo-explore/fulldisplay?docid=TN_proquest224335425&context=PC&vid=COV_VU1&search_scope=Primo_Central&tab=remote&lang=en_US [10th May 2019]

Sims, R., R. (1994) ‘Human Resource Management’s Role in Clarifying the New Psychological Contract’. Human Resource Management [online] 33 (3). available from https://locate.coventry.ac.uk/primo-explore/fulldisplay?docid=TN_scopus2-s2.0-84977383281&context=PC&vid=COV_VU1&search_scope=Primo_Central&tab=remote&lang=en_US [10th May 2019]

Tetrick, L. (2012) ‘Emotions: The Glue That Holds the Employee-Organization Relationship Together (or Not)’. In The Employee-Organization Relationship: Applications for the 21st Century [online]. ed. by Shore, L. M., Coyle-Shapiro, J. A. M., and Tetrick, L. New York: Routledge. available from https://locate.coventry.ac.uk/primo-explore/fulldisplay?docid=COV_ALMA5187868100002011&context=L&vid=COV_VU1&search_scope=LSCOP_COV&tab=local&lang=en_US [10th May 2019]

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This article is from the free online course:

Employee Engagement and Motivation: An Introduction

Coventry University