Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
Effects of Psychological Contract Breach, Ethical Leadership
and Supervisors’ Fairness on Employees’ Performance and
Wellbeing
Ezaz Ahmed and Michael Muchiri
The aim of this conceptual paper is to propose pathways through which
psychological contract breach, ethical leader behaviour, and supervisors’
fairness are related to employees’ attitudes, behaviours and wellbeing. The
paper reviews extant literature and builds a logical framework depicting the
interrelationships among psychological contract breach, ethical leader
behaviours, and supervisors’ fairness, and how they are related to
employees’ attitudes, behaviour and wellbeing. Initially, we propose a direct
effect of psychological contract breach on job satisfaction, job neglect,
organisational citizenship behaviour, intention to leave and employee
wellbeing. We also propose that ethical leadership behaviour and
supervisors’ fairness will moderate the relationship between psychological
contract breach and employees’ attitudes, behaviour and wellbeing. Based
on the proposed conceptual framework, the paper proposes several
testable research propositions. Finally, the paper outlines steps to advance
organisational theory in regard to the effects of psychological contract
breach, ethical leader behaviour and supervisors’ fairness on employee
outcomes.
Field: Human resources management, organisational behaviour, managing people and
organisation.
1. Introduction
There is an emerging literature in organisational theory which recognises the importance
of employees‟ psychological contracts (Middlemiss, 2011; Rousseau, 1989) and how
psychological contract breach (PCB) would have significant consequences at the
individual, group, and organisational levels. Indeed, recent studies suggest that
psychological contract breach is related to job satisfaction, job neglect, organisational
citizenship behaviours, intention to leave and employee wellbeing (Conway & Briner, 2005;
Middlemiss, 2011). Another stream of research has focused on ethical leadership
behaviour, and how it enhances employee attitudes, behaviour and wellbeing (Brown,
Trevino, & Harrison, 2005). Specifically, the past research has linked ethical leadership to
a variety of individual, team and organisational outcomes (e.g., Avey, Palanski, &
Walumbwa, 2010; Brown et al., 2005; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador,
2009; Walumbwa & Schaubroeck, 2009; Walumbwa, Mayer, Wang, Wang,Workman &
Christensen, 2011; Walumbwa, Morrison & Christensen, 2012). Related to this discussion,
several studies indicate that leadership behaviour, especially supervisor‟s fair treatment of
employees significantly influences employees‟ self-conceptions, and employees‟
performance and also employee wellbeing (Gerstner & Day, 1997; Sparr & Sonnentag,
Dr Ezaz Ahmed, School of Business and Law, Central Queensland University, Australia.
Email: e.ahmed@cqu.edu.au
Dr Michael Muchiri, School of Business and Law, Central Queensland University, Australia.
Email: m.muchiri@cqu.edu.au
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
2008; van Dierendonck, Haynes, Borrill, & Stride, 2004; van Knippenberg, van
Knippenberg, De Cremer, & Hogg, 2004). Sparr and Sonnentag (2008) found that
employees‟ perceived fairness of feedback was positively related to job satisfaction and
feelings of control at work and negatively related to job depression and turnover intentions.
We propose a conceptual model that fills two significant gaps in the literature. First,
employees‟ wellbeing has not been researched systematically as a resultant outcome of
employees‟ psychological contract breach. Employees‟ wellbeing will be examined as
outcome variable in the proposed model and will contribute to the psychological contract
breach, leadership and employee wellbeing literature. Second, organisational researchers
have called for research on factors, which moderate the relationship between
psychological contract breach and behavioural, attitudinal outcomes and employee
wellbeing (Kickul & Lester, 2001; Morrison & Robinson, 1997; Rousseau, 1995; Suazo,
Turnley, & Mai-Dalton, 2005; Suazo, Turnley, & Mai-Dalton, 2008). By proposing ethical
leadership behaviour and supervisors‟ fairness as moderators between psychological
contract breach and employees‟ wellbeing, behavioural and attitudinal outcomes, the
proposed conceptual model contributes significantly to the extant literature.
Therefore, our conceptual paper has three main objectives. First, in a bid to explain some
of the psychological mechanisms through which ethical leader behaviour and perception of
supervisor fairness affect employee outcomes, we integrate the extant literature on ethical
leader behaviour, supervisor fairness, psychological contract breach, job satisfaction, job
neglect, citizenship behaviours, turnover intentions and employee well-being. Second,
based on the literature review, we build a conceptual framework useful in explaining the
linkages between psychological contract breach, ethical leader behaviour, supervisor
fairness, job satisfaction, job neglect, citizenship behaviour, turnover intentions and
employee well-being. Finally, the paper outlines steps to advance organisational theory in
the field of ethical leader behaviour, supervisor fairness, psychological contract breach and
employee outcomes. In the next section we propose a conceptual model (Figure 1) which
explicates the interrelationships among the proposed variables. Later, based on the model
below and literature review, we put forward propositions explaining possible linkages
among psychological contract breach, ethical leader behaviour, supervisor fairness, job
satisfaction, job neglect, citizenship behaviour, turnover intentions and employee wellbeing.
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
Figure 1: Conceptual Model of Psychological Contract Breach and Leader
Ethical Behaviour
Moderator: Supervisor‟s
Fairness
(-)
(+)
Psychological
Contract Breach
(-)
Moderator: Leader Ethical
Behaviour
(+)
(-)
Job Satisfaction
Job Neglect
Organizational
Citizenship
Behaviour
Intention to Leave
Employee
Wellbeing
2. Literature Review
2.1 Effects of Psychological Contract Breach on Employee Attitudes, Behaviours
and Wellbeing
Psychological contract is the employee‟s beliefs about explicit and implicit promises made
to them in return of their time and effort towards the organizations (Rousseau, 1995).
Psychological contract breach refers to an employee‟s cognitive perception that she or he
has not received everything that was promised formally or informally by the organization
(Morrison & Robinson, 1997). In the last two decades, organizational researchers have
increasingly become interested in psychological contracts, mainly due to its negative
impact on employees and on organization (Conway & Briner, 2005; Middlemiss, 2011).
Psychological contract breach is related to a range of undesirable employee attitudes and
behaviours. For example, psychological contract breach is negatively related to:
employee‟s trust in management (Zhao, Wayne, Glibkowski, & Bravo, 2007), job
satisfaction (Raja, Johns, & Ntalianis, 2004; Zhao et al., 2007), intentions to remain with
the organization (Suazo et al., 2005; Turnley & Feldman, 1998, 1999, 2000), employee
performances (Johnson & O'Leary-Kelly, 2003), citizenship behaviour (Restubog, Bordia,
& Tang, 2007; Suazo & Stone-Romero, 2011; Suazo et al., 2005), civic virtue behaviour
(Chambel & Alcover, 2011) and employee commitment (Lester, Turnley, Bloodgood &
Bolino, 2002; Zhao et al., 2007) and positively related to workplace deviant behaviour
(Bordia, Restubog, & Tang, 2008), employees‟ neglect of job duties (Turnley & Feldman,
1998, 1999, 2000), job burnout (Chambel & Oliveira-Cruz, 2010), employee‟s cynicism
about their employer (Johnson & O'Leary-Kelly, 2003), higher absenteeism (Johnson &
O'Leary-Kelly, 2003) and revenge cognitions (Ahmed, Bordia, & Restubog, 2007; Bordia et
al., 2008).
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
2.1.1 Job Satisfaction
Job satisfaction is considered one of the most important work attitudes and has been
linked across numerous studies to psychological contract breach (Zhao et al., 2007). The
primary work attitudes of job satisfaction, organizational commitment, and turnover
intentions have shown robust links to psychological contract violation (de Jong, Schalk, &
De Cuyper, 2009; Zhao et al., 2007). In particular, meta-analytic evidence from 28 studies
suggests that there is a strong negative relationship between job satisfaction and
psychological contract breech (Zhao et al., 2007). Here the construct of job satisfaction is
considered to reflect a reasoned evaluation of an individual‟s job situation, where there is a
comparison between desired and actual benefits that positively affect the satisfaction of
important needs (Blomme, Van Rheede, & Tromp, 2009). Therefore, in our research we
chose to examine job satisfaction as an outcome variable associated with psychological
contract breach. It is thus predicted that:
Proposition 1a: Employees’ psychological contract breach will be negatively related to
employees’ job satisfaction.
2.1.2 Job Neglect
Earlier studies have suggested that psychological contract breach negatively influences
employees‟ attitudes towards their organizations and in role and extra role job behaviour
(Lester et al., 2002; Robinson, 1996; Robinson & Rousseau, 1994). Organizational
researchers have suggested that a breach of employees‟ psychological contract negatively
impact on their in-role job performances (Johnson & O'Leary-Kelly, 2003; Restubog et al.,
2007; Suazo, 2009; Suazo et al., 2005; Turnley, Bolino, Lester & Bloodgood, 2003). After
a psychological contract breach, employees may withdraw their in-role performance
voluntarily as they perceive that the organization did not fulfil its obligations or the
organization may not fulfil the promises in future. Examples of employee neglect at work
include a half-hearted effort to complete a task, completing tasks to low standards, higher
absenteeism from the workplace, not attending office or business meetings and not
maintaining office hours. Based on an empirical study with 804 managers, Turnley and
Feldman (1998) suggested that employees perceiving a psychological contract breach
reduce their in-role job performances. In a study with Chinese sample, Chen and
colleagues have reported that employees‟ perceived psychological contract breach was
negatively related to their work performances (Chen, Tsui, & Zhong, 2008). Employees‟
withdrawal of contribution to the organization after a psychological contract breach can be
explained with social exchange theory (Blau, 1964). According to social exchange theory
(Blau, 1964), employees are motivated to maintain a fair and balanced exchange
relationship with their organizations. In the event of a psychological contract breach,
employees may believe their organization cannot be trusted to fulfil its obligations and
does not care about employee well-being (Rousseau, 1995). Thus, the employees will be
motivated to restore balance to the employment relations in some ways. One way to
restore balance in the employment relationship would be by reducing employee‟s
contribution to the organization. As such, employees reduce their in-role job efforts to
balance this relationship (Chen et al., 2008; Lester et al., 2002; Suazo et al., 2005). Thus,
it is expected that psychological contract breach will be positively related to neglect of job
performance. Thus, it is proposed that:
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
Proposition 1b: Employees’ psychological contract breach will be positively related to
employees’ job neglect.
2.1.3 Organisational Citizenship Behaviour (OCB)
OCB can be referred to as a set of discretionary workplace behaviours that exceed one‟s
basic job requirements. OCB can be termed as extra role behaviours that promote
organisational effectiveness (Organ, 1988; Robinson & Morrison, 1995). The importance of
OCB in effective organisational functioning is well documented (Podsakoff, Whiting,
Podsakoff & Blume, 2009; Podsakoff, MacKenzie, Paine & Bachrach, 2000; Organ &
Paine, 2001). These behaviours encourage cooperation and association among
employees in the workplace and enhance the overall productivity, social environment,
stability and managerial productivity of the organisation (Podsakoff et al., 2009; Podsakoff
et al., 2000). Individuals are believed to engage in OCBs to pay back or reward their
organisations for equitable treatment (Robinson & Morrison, 1995; Organ, 1997).
Consequently, OCBs are withheld when employers do not provide adequate outcomes
(Robinson & Morrison, 1995) as a consequence of unethical leader behaviour (Zellers,
Tepper & Duffy, 2002). Thus, it is predicted that:
Proposition 1c: Employees’ psychological contract breach will be negatively related to
employees’ citizenship behaviours.
2.1.4 Intention to Leave the Organisation
After experiencing a negative experience at the workplace (a psychological contract
breach), employees may evaluate the situation and question whether to remain in the
employment relationship (Turnley & Feldman, 1999).Research on employee turnover has
found that intention to leave the organization is a reliable predictor of future turnover
(Roehling, 1997). Employees‟ turnover intentions have been a major interest in the
management literature. It is likely that if they perceive injustice in the relationship after an
abusive supervision and perceive future mistreatment of the same kind, it is likely that they
will look for employment elsewhere. This can also be explained from the social exchange
perspective. In the event of a psychological contract breach, an employee‟s trust in the
fulfilment of future exchanges is severely damaged and the negative treatment denies
valued benefits. As a result, they may believe that it is important to look for alternative
employment opportunities in order to obtain valued benefits in the future. The actual
turnover of employees after a psychological contract breach may impact on organizational
performances. Employee turnover is costly to the organisation (Roehling, 1997). From the
organisation‟s perspective, it takes substantial time, money and effort to recruit new
employees and such loss often disrupts the regular business operations as well as fosters
low workforce morale (Kacmar, Andrews, Van Rooy, Steilberg & Cerrone, 2006; Zhao et
al., 2007). Actual turnover of employees can be viewed as a tangible impact of a
psychological contract breach on the organization. Thus, it is proposed that:
Proposition 1d: Employees’ psychological contract breach will be positively related to
employees’ intention to leave the organisation.
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
2.1.5 Employee Wellbeing
There is a growing interest among organisational researchers in health, safety, and
workplace health promotion as most individuals spend at least a quarter to a third of their
time of a day at workplace (Harter, Schmidt & Keyes 2003; Gurt & Elke 2009).
Consequently many organisations are integrating a variety of novel practices to cultivate
healthy worksites (Grawitch, Gottschalk & Munz 2006). Further, organisations now
recognise that healthy workplaces maximise the integration of worker goals for well-being
and company objectives for profitability and productivity (Sauter, Lim & Murphy 1996). It is
further envisaged that workplace practices and managerial styles do influence employee
well-being and organisational effectiveness. Many organisations now realise that you
cannot separate out employee health and well-being from clients/customers satisfaction.
Grawitch et al. (2006) propose a direct and indirect link between healthy workplace
practices and organisational improvements. They categorise healthy workplace practices
into five general categories: work-life balance, employee growth and development, health
and safety, recognition, and employee involvement. Employee health presupposes a state
of complete physical, mental and social well-being (Gurt & Elke 2009, p.29), and is an
important factor if organisations are to achieve their set goals. Stressful workplaces have
organisational costs and negative consequences for employees. Furthermore, there is
evidence showing that other people at work, especially one‟s supervisor, can dramatically
affect the way one feels about one‟s work and about oneself (Dellve, Skagert &
Vilhelmsson 2007; Gurt & Elke 2009; van Dierendonck et al., 2004). It is argued in the
current paper that employees‟ psychological contract breach will influence employee
wellbeing and hence it is predicted that:
Proposition 1e: Employees’ psychological contract breach will be negatively related to
employees’ wellbeing.
2.2 Moderating Effects of Ethical Leader Behaviour
Ethical leadership (Brown et al., 2005) has become a rapidly expanding area of enquiry.
Ethical leadership is defined as „„the demonstration of normatively appropriate conduct
through personal actions and interpersonal relationships, and the promotion of such
conduct to followers through two-way communication, reinforcement, and decisionmaking‟‟ (Brown et al., 2005, p. 120). Ethical leadership portrays a leader‟s traits,
behaviours and practices of ethical conduct in the organisational context (Brown et al.,
2005). Organisational researchers have suggested that ethical leadership is positively
related to pro-social behaviour and negatively related to deviant behaviours (e.g., Avey et
al., 2010; Brown et al., 2005; Mayer et al., 2009; Walumbwa & Schaubroeck, 2009). There
is a scope of investigating ethical leader behaviour in relationship between psychological
contract breach and employee outcomes. As psychological contract is perceptual,
subjective and idiosyncratic in nature, trust and fairness are vital in strengthening the
relationship. The strength of the employees‟ emotional and behavioural responses after a
psychological contract breach can be moderated by the employees‟ cognitive
assessments of the situation within which the breach took place (Kickul, Lester, & Finkl,
2002, Morrison and Robinson, 1997, Rousseau, 1995). Further, recent studies have also
confirmed that ethical leader behaviour is positively related to employee performances
(Walumbwa et al., 2011, 2012).
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
Empirical research suggests that citizenship behaviours may be withdrawn by an
employee in response to the negative treatment received (Zellers et al., 2002). There is no
doubt that employees perceive unethical leader behaviour as a negative and unwanted
situation. Unethical leader behaviour indicates an imbalance in the social exchange
relationship, similar to distributive injustice (Zellers et al., 2002). In order to “get even” with
the organization after an unethical leader behaviour, employees are likely to reduce their
commitments to the organization and contribute less in the form of citizenship behaviours
(Zellers et al., 2002). The moderating effects of leader ethical behaviour are proposed
between employees‟ psychological contract breach and resultant outcomes.
Proposition 2a: Leader ethical behaviour will moderate the relationship between
psychological contract breach and employee’s job satisfaction such that the relationship
between psychological contract breach and employee’s job satisfaction will be stronger
when leader ethical behaviour is high than when it is low.
Proposition 2b: Leader ethical behaviour will moderate the relationship between
psychological contract breach and employee’s job neglect such that the relationship
between psychological contract breach and employee’s job neglect will be stronger when
leader ethical behaviour is high than when it is low.
Proposition 2c: Leader ethical behaviour will moderate the relationship between
psychological contract breach and employee’s organisational citizenship behaviours such
that the relationship between psychological contract breach and employee’s organisational
citizenship behaviours will be stronger when leader ethical behaviour is high than when it
is low.
Proposition 2d: Leader ethical behaviour will moderate the relationship between
psychological contract breach and employee’s intention to leave such that the relationship
between psychological contract breach and employee’s intention to leave will be stronger
when leader ethical behaviour is high than when it is low.
Proposition 2e: Leader ethical behaviour will moderate the relationship between
psychological contract breach and employee wellbeing such that the relationship between
psychological contract breach and employee wellbeing will be stronger when leader ethical
behaviour is high than when it is low.
2.3 Moderating Effects of Supervisor Fairness
Supervisor fairness refers to the employees‟ perceptions of fairness in the workplace in
terms of how they are treated (interactional justice) (Greenberg, 1990, Lee and Allen,
2002). Supervisor fairness is synonymous to interactional justice. Prior justice literature
has revealed that employee‟s perception of justice can impact on their job performances
(Lind and Tyler, 1988), workplace deviant behaviours (Aquino, Lewis & Bradfield, 1999,
Greenberg, 1993) and citizenship behaviours (Moorman, 1991). Employee‟s perception of
the supervisor fairness can also be influential in forming their attitudes and behaviour (Bies
and Moag, 1986). Supervisor fairness is positively related to job commitment and
citizenship behaviours (Coyle-Shapiro, 2002). Hence, Fairness perceptions at work
influence employees‟ attitudes and behaviours in organizations (Blader & Tyler, 2005).
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
Employees care about being treated fairly, because fairness serves psychological needs,
including „„control, belonging, self-esteem and meaningful existence‟‟ (Cropanzano, Byrne,
Bobocel, & Rupp, 2001, p. 175). As suggested by Sparr and Sonnentag (2008), fairness of
specific leadership behaviours (i.e. feedback delivery towards work-related outcomes) are
likely to enhance our understanding of which leadership behaviours are important to
employees and how they can be improved. There are relatively few studies that have
explored the moderating role of supervisor fairness in the relationship between
psychological contract breach and employee outcomes. In a longitudinal study of 147
managers, Robinson and Morrison (2000) found that perception of fairness and attribution
moderated the relationship between psychological contract breach and feelings of violation.
Skarlicki and Folger (1997) have revealed that high levels of supervisor fairness can
moderate employee‟s retaliatory behaviours. Thus, justice perceptions may play a critical
role in shaping employee‟s cognitive assessment of psychological contract breach and
consequently moderate employee attitudes and behaviours. Specifically, the resultant
employees‟ attitudes and behaviour after a psychological contract breach can largely
depend on high or low levels of supervisor fairness. Based on the above discussion, it can
be argued that employees‟ perception of supervisor fairness can influence employees‟
attitudinal, behavioural outcomes and wellbeing. Hence, it is suggested that:
Proposition 3a: Perception of supervisor’s fairness will moderate the relationship between
psychological contract breach and employee’s job satisfaction such that the relationship
between psychological contract breach and employee’s job satisfaction will be stronger
when perception of supervisor’s fairness is high than when it is low.
Proposition 3b: Perception of supervisor’s fairness will moderate the relationship between
psychological contract breach and employee’s job neglect such that the relationship
between psychological contract breach and employee’s job neglect will be stronger when
perception of supervisor’s fairness is high than when it is low.
Proposition 3c: Perception of supervisor’s fairness will moderate the relationship between
psychological contract breach and employee’s organisational citizenship behaviours such
that the relationship between psychological contract breach and employee’s organisational
citizenship behaviours will be stronger when perception of supervisor’s fairness is high
than when it is low.
Proposition 3d: Perception of supervisor’s fairness will moderate the relationship between
psychological contract breach and employee’s intention to leave such that the relationship
between psychological contract breach and employee’s intention to leave will be stronger
when perception of supervisor’s fairness is high than when it is low.
Proposition 3e: Perception of supervisor’s fairness will moderate the relationship between
psychological contract breach and employee wellbeing such that the relationship between
psychological contract breach and employee wellbeing will be stronger when perception of
supervisor’s fairness is high than when it is low.
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Proceedings of 23rd International Business Research Conference
18 - 20 November, 2013, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-36-8
3. Conclusion
The objective of the paper was to integrate and propose the relationships among
employees‟ psychological contract breach, ethical leader behaviour, supervisor fairness
and employee attitudes, behaviour and wellbeing. Based on the extant literature, it is
argued that employees‟ psychological contract breach, managers‟ ethical behaviour and
employee perception of fairness would influence employees‟ attitudes, behaviours and
wellbeing. The proposed model highlights the significance of managers‟ use of ethical
behaviour and supervisors‟ fairness between the relationship employees‟ psychological
contract breach and resultant behavioural, attitudinal outcomes. The model also
emphasises on the impact of employee wellbeing after a psychological contract breach.
To advance organisational theory on psychological contract breach, ethical leader
behaviour, supervisor fairness, job satisfaction, job neglect, citizenship behaviours,
turnover intentions and employee wellbeing, this paper proposes several steps. First,
future research should consciously integrate ethical leader behaviour and supervisor
fairness in comprehensive organisational studies which examine how leadership and
managerial behaviour manifest in organisations. Second, researchers should design
broader studies which examine the interplay among ethical leader behaviour, supervisor
fairness and psychological contract breach, so that we understand how they influence
organisational effectiveness in managing employment relationship. We encourage
organisational researchers to test out our research model and the accompanying
propositions to see if there are significant relationships among the proposed linkages
between psychological contract breach, ethical leader behaviour, supervisor fairness, job
satisfaction, job neglect, citizenship behaviours, turnover intentions and employee
wellbeing.
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