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Toward a Better Understanding of Psychological Contract Breach: A Study of Customer Service Employees

Stephen J. Deery King’s College London

Roderick D. Iverson Simon Fraser University

Janet T. Walsh King’s College London

Experiences of psychological contract breach have been associated with a range of negative behavior. However, much of the research has focused on master of business administration alumni and managers and made use of self-reported outcomes. Studying a sample of customer service employees, the research found that psychological contract breach was related to lower organizational trust, which, in turn was associated with perceptions of less cooperative employment relations and higher levels of absenteeism. Furthermore, perceptions of external market pressures moderated the effect of psychological contract breach on absenteeism. The study indicated that psychological contract breach can arise when employees perceive discrepancies between an organization’s espoused behavioral standards and its actual behavioral standards, and this can affect discretionary absence.

Keywords: psychological contract breach, absenteeism, trust, customer service employees, call centers

There is a growing body of empirical research on the breach or violation of the psychological contract (Conway & Briner, 2002; Lo & Aryee, 2003; Robinson & Morrison, 2000). The stimulus for this research has been the apparent change in the nature of the employment relationship, occasioned by a loss of job security, the erosion of promotional opportunities, and the increased uncertainty of regular and orderly pay increases. In this context, researchers have suggested that employees are less likely to believe that employers are fulfilling their obligations and responsibilities (Mor- rison & Robinson, 1997). Traditional psychological contracts built on an exchange of loyalty and effort for job security, career development, and predictable pay systems are said to be giving way to more fragile relationships in which reciprocal obligations are less certain and in which expectations of mutual benefit are less likely to be realized (Turnley, Bolino, Lester, & Bloodgood, 2003). In those circumstances in which individuals believe that their organizations have failed to fulfill their obligations, there is evi- dence to indicate that this perception can lead to a range of negative outcomes, including higher turnover, reduced job satis- faction, increased cynicism, diminished organizational citizenship

behavior, and changes in mood (Conway & Briner, 2002; Coyle- Shapiro, 2002; Robinson, 1996; Robinson & Morrison, 2000; Turnley & Feldman, 1999, 2000).

The purpose of this study was to examine the effects of psy- chological contract breach on employee absence. The present article seeks to extend existing research on psychological contract breach in two ways. The first relates to the issue of sampling. Most of the research has been conducted on recently graduated MBAs or managerial or professional staff. There have been calls for more diverse sample populations in order to assess the generalizability of findings to other employee groups (Guest, 1998; Robinson & Morrison, 2000). Indeed, Turnley and Feldman (1999) called for the research “to aggressively expand its sample base lest it be reduced to the investigation of the disappointments and perceived entitlements of highly paid new MBAs simply experiencing ‘entry shock’ as they make the transition from school to work” (p. 383). This study examines the consequences of psychological contract breach among a sample of call-center customer contact workers who are emblematic of the rapidly growing interactive service sector (Batt, 2002; Frenkel, Korczynski, Shire, & Tam, 1999). Second, much of the past research has relied almost exclusively on individual self-report measures of performance, such as turnover intentions, organizational citizenship behavior, and job satisfac- tion. A number of researchers have raised concerns about the limitations of these data and urged that future studies should examine individual work behaviors using archival personnel records (Turnley et al., 2003; Turnley & Feldman, 2000). Our study assesses the effect of psychological contract breach on employee absenteeism by drawing on data collected from com- pany personnel files. Absenteeism has been overlooked as a pos- sible behavioral outcome despite its serious organizational conse- quences (Harrison & Martocchio, 1998).

Stephen J. Deery and Janet T. Walsh, Department of Management, King’s College, London, University of London, London, England; Rod- erick D. Iverson, Faculty of Business Administration, Simon Fraser Uni- versity, Burnaby, British Columbia, Canada.

An earlier version of this article was presented at the 63rd annual meeting of the Academy of Management, Seattle, Washington, August 2003.

Correspondence concerning this article should be addressed to Stephen J. Deery, Department of Management, King’s College London, University of London, Franklin-Wilkins Building, 150 Stamford Street, London SE1 9NN, United Kingdom. E-mail: stephen.deery@kcl.ac.uk

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The Shared Nature of the Psychological Contract

Rousseau (1989) has defined the psychological contract as an individual’s belief about the terms of the reciprocal exchange agreement that exists between themselves and their organization. It emerges when an individual believes that their organization has made a promise of future benefits in exchange for a contribution that has been given. This may consist of a belief, for example, that an organization has promised to provide career advancement in exchange for hard work and good performance. These understand- ings are subjective. The belief that a promise or future obligation exists is based on the employee’s perceptions. Such a belief may be conveyed through recruitment interviews, performance apprais- als, written personnel policies, or organizational practices.

Psychological contracts may be shared (Rousseau, 1995). Where employees hold similar interpretations of their commit- ments and obligations, their psychological contracts can take on a strongly normative or shared character. This is most likely to occur where employees are party to the same contract terms as their fellow workers and where they identify others as having the same employment deal (Rousseau & McLean Parks, 1993). Individual psychological terms are more uniform where standardized employ- ment arrangements apply and where there are limited opportunities to negotiate individualized or idiosyncratic contracts of employ- ment (Rousseau & Schalk, 2000). Workers who occupy jobs at the bottom of the organizational hierarchy and whose terms of em- ployment are set through collective bargaining will tend to fall into this category.

Where individuals in a work unit have a shared understanding of the terms of their psychological contract, there will be a tendency for them to reinforce each other’s assessments of it and perceive breaches by observing organizational practices affecting fellow employees (Rousseau, 1995). Common understandings and beliefs can develop through social information processing (Salancik & Pfeffer, 1978). Organizational actions can be subjected to both group discussion and socially derived interpretations. Individuals will make comparisons with fellow workers in order to evaluate events and circumstances relevant to their job (Brockner, 1988). In such circumstances, individual attitudes can coalesce, and work groups can agree on their interpretation of their organization’s behavior (Nicholson & Johns, 1985). A belief that the organization has broken its promises to employees within the work unit can undermine the relationship upon which the individual’s employ- ment contract is based and result in lower discretionary inputs. It can also produce feelings of betrayal and wrongdoing.

Theory and Hypotheses

Social exchange theory has commonly been used as a means of explaining how employees may respond to psychological contract breach (Lester, Turnley, Bloodgood, & Bolino, 2002; Turnley et al., 2003). Employees are said to be motivated by a desire to maintain a reciprocal or balanced relationship with their organiza- tion in terms of inducements and contributions (Blau, 1964). Should they believe that their organization has not fulfilled its contractual obligations, this perceived breach will tend to under- mine assumptions of fair dealing that underlie long-term employ- ment relationships (Rousseau & McLean Parks, 1993). This, in

turn, will erode trust in the organization. Trust reflects a confi- dence between the parties that they will not be harmed or put at risk by the actions of the other party and that neither party to the exchange will exploit the other’s vulnerability (Jones & George, 1998). Both behavioral consistency and behavioral integrity influ- ence employees perceptions of managerial trustworthiness (White- ner, Brodt, Korsgaard, & Werner, 1998). In circumstances of perceived contract breach, the employer’s integrity will be ques- tioned, as their actions will be seen as incongruent with their words (Mayer, Davis, & Schoorman, 1995). Moreover, doubts may emerge about the consistency and predictability of the organiza- tion’s future actions and behavior (Butler, 1991). Perceptions of broken promises will therefore lead to a loss of trust (Robinson, 1996). Thus,

Hypothesis 1: Perceived contract breach will be negatively associated with an employee’s trust in the organization.

Trust is an important precursor of cooperation. Indeed, it has been described as the key factor in forming cooperative relation- ships within organizations (Smith, Carroll, & Ashford, 1995). It is also widely acknowledged that a loss of trust can lead to a less cooperative relationship among organizational members (Axelrod, 1984; McAllister, 1995). In such circumstances, individuals will have less confidence that they will not be put at risk by the actions of their organization and will often seek to defend themselves against the possibility of opportunistic behavior (Jones & George, 1998; Kramer, 1996). This can result in a variety of responses ranging from confrontation to a withdrawal of support and a reassessment of the relationship with their employer (Bies & Tripp, 1996). Perceptions of untrustworthiness will increase an employee’s awareness of existing conflicts of interest and encour- age them to view the relationship as less cooperative (Mishra, 1996). Thus,

Hypothesis 2: Lower levels of trust in the employer will be associated with less cooperative employment relations.

Organizational climate can influence the motivation and behav- ioral patterns of individuals within a workplace (Hellriegel & Slocum, 1974; Litwin & Stringer, 1968). A more cooperative employment relationship can improve performance (Cutcher- Gershenfeld, 1991; Katz, Kochan, & Weber, 1985). It can increase discretionary effort and reduce shirking (Kidwell & Bennett, 1993). Absenteeism is also sensitive to the character of the em- ployment relationship (Dastmalchian, Blyton, & Abdollahyan, 1982; Deery, Erwin, & Iverson, 1999; Johns, 2003). As a behav- ioral response to a negative work situation, absenteeism can be influenced by the nature and quality of the interaction between workers and their managers (Nicholson & Johns, 1985). Where employees believe that their organization is less willing to main- tain a mutually beneficial employment relationship, it is likely that they will be less motivated to contribute to the exchange relation- ship (Edwards & Whitston, 1993). We would therefore expect that perceptions of a more conflictual relationship would be associated with greater indifference to the interests and concerns of the organization and with higher levels of work withdrawal in the form of discretionary absence (Fox, 1974). Thus,

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Hypothesis 3: Less cooperative employment relations will be associated with higher levels of employee absence.

Researchers have suggested that perceptions of contract breach will trigger a cognitive process through which employees will seekto explain the event (Robinson & Morrison, 2000). This will include a search for the reasons for the nonfulfillment of the contract. Rousseau (1995) argued that an employee’s affective response to the breach will be affected by their interpretation of why the breach occurred. Should the employee attribute the breach to a deliberate unwillingness of the organization to fulfill its obligations, it could be expected that they would be resentful and react negatively to that breach (Turnley et al., 2003; Turnley & Feldman, 1999). Alternatively, where an employee believed that there were mitigating circumstances that made it difficult for the organization to live up to its promises, it could be expected that that employee would feel less betrayed (Morrison & Robinson, 1997). Thus, we would postulate that attributions of blame will moderate the relationship between perceived breach of contract and feelings of trust in the organization. If the circumstances that inhibit contract fulfillment are perceived to be outside the control of the organization (such as external market factors), then it is less likely that it will lead to a decline in trust (Lewicki & Bunker, 1996). Thus,

Hypothesis 4: The relationship between perceived contract breach and trust will be weaker (less negative) to the extent that external market pressures are believed to inhibit contract fulfillment.

Not all employees will feel free to withhold effort in response to perceptions of an uncooperative employment relationship. Where individuals have few available job opportunities, for example, they may be unwilling to reduce their contribution to the organization and take time off work for fear of being dismissed from their job (Mowday, Porter, & Steers, 1982). There is evidence to indicate that perceptions of restricted ease of movement to comparable jobs have been associated with lower levels of absence (Larson & Fukami, 1985). Alternatively, where job opportunities are per- ceived to be more plentiful, it could be expected that an employee would be more willing to risk their job and reduce their work effort by being absent more frequently. Thus,

Hypothesis 5: The relationship between cooperative employ- ment relations and absenteeism will be stronger (more nega-

tive) to the extent that the employee perceives greater avail- able job alternatives.

The hypothesized model is presented in Figure 1.1

Method

Research Site and Sample

The study was conducted in a large telecommunications company in Australia that supplied local, international, and mobile telecommunication services. In the 1990s, the industry was subjected to deregulation and market liberalization not unlike that which had occurred in the United States and Britain (Batt & Keefe, 1999; Katz, 1997). This resulted in changes to the company’s organizational structure and in a rationalization of its business activities. It lost its monopoly status and was partially privatized. In the face of more widespread competition, the company signaled its intention to become more customer-focused. It committed itself to devolved decision making and joint problem solving with its customer service staff and to a program of training and development, skill enhance- ment, and performance-based pay.

1 Although it is not shown in Figure 1, we controlled for the effects of five demographic variables: age, sex, education, tenure, and employment status (full- and part-time). Research indicates that organizational trust is negatively associated with full-time employment status, tenure, and age, whereas higher levels of education have a positive relationship (Eberhardt & Shani, 1984; Kiffin-Petersen & Cordery, 2003; Lo & Aryee, 2003). Female employees could be expected to exhibit lower trust in their orga- nization because they often encounter greater uncertainty and vulnerability in the workplace (Kramer, 1996). We also predicted that older and longer tenured employees would view the employment relationship as more cooperative because they enjoy the benefits of seniority systems of em- ployment (Deery et al., 1999). More educated employees are less likely to assess the employment relationship favorably because they have greater alternative job opportunities and fewer side bets in the employment rela- tionship (Becker, 1960). We postulated that women would have more negative perceptions of the relationship between staff and management because they tend to occupy more temporary and less secure jobs that may afford them fewer employment benefits. Part-time workers were expected to hold more positive perceptions of cooperation because of their generally more favorable attitudes to organizational policies and reward systems (Eberhardt & Shani, 1984). Finally, in terms of absenteeism, research has shown that older employees and those with higher levels of education and job tenure are less likely to be absent from work, whereas full-time employees and women are more likely to experience higher levels of absenteeism (Iverson & Deery, 2001; Lau, Au, & Ho, 2003; Martocchio, 1989; Rhodes & Steers, 1990).

Figure 1. Proposed indirect and moderator effects of breach of psychological contract on absenteeism.

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In December 1996, the company’s revamped organizational structure was put into writing in a collective-bargaining agreement known as the “Competency Based Training and Pay Structure Agreement,” which ap- plied specifically to the company’s customer service representatives. Its objectives were, first, to “Develop a highly skilled workforce that is adaptable in a customer service and sales environment and is able to . . . initiate changes to maintain excellent customer service”; second, to “Es- tablish a stable workforce”; third, to “Establish clear . . . accountabilities which are directly related to competency standards”; fourth, to “Develop a management and team culture based on recognition of shared responsibil- ities for training, development, and continuous learning . . . and individual and team performance management and improvement”; and finally, to “Establish a clear relationship between different levels of competencies . . . and levels of pay.” In exchange, employees were expected to apply their “customer service skills” to provide “excellent customer service” and to “improve the effectiveness and efficiency of customer service. . . and thereby improve returns to the business.” A copy of the agreement was supplied to all customer service staff. The message was reinforced by the union that represented the staff and by the company that continued to emphasize its strong commitment to devolve responsibility to employees for sales performance and to introduce a system of pay on the basis of sales and service delivery.

In February 1998, a survey was administered to a group of 562 customer service representatives who were employed to answer inquiries about both bills and accounts and new products and services. The questionnaire was completed during working hours. Employees were provided with time off the job to complete the survey and were also encouraged to express their views at the end of the questionnaire about work and employment in the company. A total of 480 employees completed the survey. This represented an 85% response rate. Of the respondents, 69% were female, and 85% worked full time. The mean age of the respondents was 35 years, and the average tenure was 7.4 years. The average level of education was 11.9 years (see Table 1).

Measures

All questionnaire items were measured on a 5-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree), with the exception of absenteeism and the demographic details. The Cronbach’s alpha reliabili- ties of the multiple-item scales are shown along the diagonal in Table 1.

Absenteeism was measured as the number of 1- and 2-day absences the employee had taken on sick leave in the 12-month period to the date at which the survey was administered.2

The absence data were collected from the personnel records of each employee. These data were supplied to each respondent who inserted the

relevant information into the questionnaire. No statistical difference was found between the aggregated frequency of 1- and 2-day absences col- lected from the personnel records and that reported by the respondents, t(479) � 0.53, p � .05. It should be noted that the frequency of short-term absences—1 or 2 days—is regarded as the most reliable measure of voluntary or avoidable absence (Brooke & Price, 1989; Price, 1997).

Breach of shared psychological contract was assessed with a five-item scale. Respondents were asked to indicate the degree to which they felt that their organization had fulfilled its obligations to employees on five dimen- sions of the employment relationship that were shared by those employees: training, career development, pay based on performance, involvement in decision making, and long-term job security. Sample items included “[The organization] has fulfilled its obligations to employees on training” (re- verse scored; R) and “[The organization] has fulfilled its obligations to employees on involvement in decision making” (R). A higher score on the recorded items indicated a greater perception of contract breach. It should be noted that our psychological contract construct is broader than that used by Rousseau (1989, 1995) in that we are measuring the individual’s perception of the organization’s fulfillment of its obligations to employees in general.

Trust in the organization was measured with three items from a scale developed by Robinson and Rousseau (1994) and included questions such as “In general, I believe [the organization’s] motives and intentions are good” and “I am not sure that I fully trust [the organization]” (R).

Cooperative employment relations was a six-item scale adapted from Hammer, Currall, and Stern (1991) that assessed the degree to which individuals believed that the relationship between employees and the employer was cooperative. Items included “Staff and management try to

2 We were not provided with the opportunity of gathering absence data longitudinally in the period following the survey. However, there is a large body of research evidence to indicate that prior absenteeism is the best predictor of subsequent absenteeism (Breaugh, 1981; Chadwick-Jones, Brown, & Nicholson, 1971; Hardy, Woods, & Wall, 2003; Harrison & Martocchio, 1998; Ivancevich, 1985; Johns, 2003; Rentsch & Steel, 1998). In a 6-year panel study of the frequency of absenteeism, for example, Rentsch and Steel (1998) reported consecutive yearly correlations of .74, .71, .63, .62, and .60. The authors also found that job characteristics predicted absence over the 6-year study period and that the magnitude of the relationships remained relatively constant. Hence, although we mea- sured the frequency of 1- and 2-day absences in the 12 months prior to the date at which the survey was administered, we have made use of this measure as our dependent variable because of the stability of absence behavior and because it is the best predictor of subsequent absenteeism.

Table 1 Means, Standard Deviations, Correlations, and Reliabilities

Determinants Number of items M SD 1 2 3 4 5 6 7 8 9 10 11

1. Absenteeism 1 6.63 6.12 — 2. Cooperative employment relations 6 2.65 0.76 �.16 .84 3. Trust 3 2.70 0.83 �.08 .65 .76 4. Breach of psychological contract 5 3.55 0.79 .04 �.60 �.60 .82 5. External market pressures 3 3.49 0.78 �.06 .15 .12 �.19 .62 6. Available job alternatives 4 3.62 0.91 .06 �.05 �.06 .02 �.02 .76 7. Age 1 35.45 10.33 �.16 .06 �.01 .01 .04 �.10 — 8. Female 1 0.69 0.46 .07 .04 .08 �.12 .06 .03 �.06 — 9. Education 1 11.90 1.67 �.05 .02 .08 �.02 .01 �.06 �.07 �.08 —

10. Tenure 1 7.42 6.62 �.11 �.03 �.06 .01 .06 �.12 .49 �.11 �.18 — 11. Full time 1 0.85 0.36 .13 �.17 �.08 .06 �.01 .01 �.08 �.19 .08 .04 —

Note. Reliabilities are reported along the diagonal. Correlations above [.08] are significant at p � .05, one-tailed.

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cooperate as much as possible” and “The relationship between staff and management is hostile” (R). The variable external market pressures was measured with three items, including “Increased competition makes it difficult for [the organization] to maintain the same conditions of employ- ment for its staff” and “[The organization] faces business pressures today that it did not in the past.” Available job alternatives was operationalized by using three items from Meyer and Allen’s (1991) Continuance Com- mitment scale and included “I feel that I have too few job options to consider leaving [the organization] right now” (R) and “One of the few serious consequences of leaving [the organization] would be the scarcity of available job alternatives” (R).

The control variables were measured in the following way: age (in years); female (dichotomous variable coded 1 � female; 0 � male); education (in years); tenure (years of service with employing organiza- tion); and full time (dichotomous variable coded 1 � full time; 0 � part time).

Analysis

We used the linear structural relations (LISREL) VIII program (Jöreskog & Sörbom, 1996a) to estimate the hypothesized model (see Figure 1). It is well established that our measure of absenteeism—the frequency of 1- and 2-day absences—would be associated with problems of skewness and truncation (Hammer & Landau, 1981; Price & Mueller, 1986). We there- fore “censored” (transformed via normal scores) this measure using the PRELIS program (Jöreskog & Sörbom, 1996b). The PRELIS correlation matrix was then used as the input to LISREL following the screening of all data (e.g., continuous, censored, and ordinal variables).

Confirmatory factor analyses were undertaken using LISREL VIII (Jöreskog & Sörbom, 1996a) to assess the convergent and discriminant validity of the multiple-item measures (Gerbing & Anderson, 1993). In terms of the convergent validity using a nested approach, the hypothesized five-factor model was found to significantly better fit the data than both the null, ��2(31) � 4520.43, p � .001, and the one-factor, ��2(10) � 1507.16, p � .001, models.3 Examination of the parameter estimates (factor load- ings) of the best fitting nine-factor model were all significant ( p � .05) and ranged from .57 to .90. These results affirmed the convergent validity of the model. The discriminant validity of all constructs was also supported (see Bagozzi & Yi, 1988, for the procedure). The measurement model demonstrated acceptable fit: goodness-of-fit index (GFI) of .87, a normed comparative fit index (CFI) (Bentler, 1990) of .89, and a root-mean-square error of approximation (RMSEA) (Browne & Cudeck, 1993) of .084

(Browne & Cudeck, 1993; Gerbing & Anderson, 1993). The average reliability of the multiple-item measures displayed a good internal consis- tency of .76.5 The results of the structural model are described below.

Results

Multivariate Data

The hypothesized mediated model provided an acceptable fit of the data, �2(143) � 626.221, p � .001; GFI � .88; CFI � .90; RMSEA � .08.6 However, Kelloway (1998) recommended that before this model is used, two other nested structural models should be tested. These models compose a partially mediated model in which a path between breach of psychological contract and absenteeism was added, and a nonmediated model, which encompassed the partially mediated model with the paths from trust and cooperative employment relations, removed. The par- tially mediated model provided satisfactory fit to the data, �2(142) � 624.812, p � .001; GFI � .89; CFI � .90; RMSEA � .08. Conversely, the nonmediated model did not provide a good fit to the data, �2(144) � 852.318, p � .001; GFI � .85; CFI � .80;

RMSEA � .10. The result of the chi-square difference test demon- strated that the partially mediated model, ��2(1) � 1.41, p � .05, failed to provide a significant improvement in fit over the more parsimonious, fully mediated model. In addition, the fully medi- ated model was found to be a significant better fit than the nonmediated model, � �2(1) � 226.10, p � .05. Therefore, the hypothesized (fully mediated) model was retained in the analysis.

The LISREL results of the hypothesized model (see Figure 1) are presented in Table 2. It can be seen that there was support for our initial three hypotheses, controlling for the demographic vari- ables. Hypothesis 1 predicted that psychological contract breach would be associated with lower trust. This was supported by the results (� � �.827, p � .001). We also hypothesized that lower levels of trust would have a negative effect on perceptions of cooperative employment relations. The results provided support for this hypothesis (� � .893, p � .001). In Hypothesis 3, we predicted that perceptions of a less cooperative employment rela- tionship would be associated with higher absenteeism. The results were consistent with our expectations (� � �.100, p � .05).

It should also be noted that education (� � .081) was signifi- cantly related to trust, whereas the determinants comprised of female (� � �.122), education (� � �.110), and full-time (� � �.173) employment were associated with perceptions of cooper- ative employment relations. In addition, the determinants com- prised of female (� � .192), education (� � �.114), full time (� � .331) employment, and tenure (� � �.108) were related to absenteeism.

3 On the basis of the sample size (N) to number of variables ( p) ratio (480:21), p to number of factors (r) ratio (21:5), and the average commu- nality of .54, our sample size was sufficient to recover the factor solutions (MacCallum, Widaman, Preacher & Hong, 2001; MacCallum, Widaman, Zhang & Hong, 1999).

4 We also used the comprehensive exploratory factor analysis program with the PACE option (Browne, Cudek, Tateneni, & Mels, 2002). This option provides true estimates for the population communalities for the five factors. The 90% confidence interval ranged from .05 to .07, indicating that the hypothesis of close fit (H0: � � 0.05 and Ha: � � 0.05) is plausible and that the hypothesis of not close fit (H0: � � 0.05 and Ha: � � 0.05) cannot be rejected (MacCallum, Browne, & Sugawara, 1996). However, if � � 0.08 (reasonable fit), then the hypothesis of not close fit can be rejected. Hence, the fit of the model is considered to be acceptable and reasonable (Browne & Cudek, 1993).

5 Although the scale of external market pressures had an alpha lower than .70, we retained it for several reasons. Cortina (1993) has noted that the number of items used to measure a construct must be considered. Accordingly, as we used three items that were found to be unidimensional and had item intercorrelations ranging from .35 to .38 as well as the fact that the scale was developed by the researchers, it was retained in the analysis.

6 We calculated the statistical power of the model (i.e., probability of rejecting a false null hypothesis-Type II [�] error) (see SAS program by MacCallum et al., 1996). Inputting the null and alternative values of the root-mean-square error of approximation (� 0 � 0.05 and �a � 0.08; �0 � 0.05 and �a � 0.01; �0 � 0.00 and �a � 0.05) (see Browne & Cudeck, 1993, for discussion of �0 and �a), the alpha level, degrees of freedom, and sample size, the power estimate exceeded Cohen’s (1988) recommended criterion of .80. As the model was observed to have sufficient power to detect effect sizes (i.e., parameter estimates), we proceeded with our analysis.

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To evaluate the effects of common method bias (see Podsakoff, MacKenzie, Lee, & Podsakoff, 2003, for a review), we used the procedure recommended by Podsakoff, MacKenzie, Moorman, and Fetter (1990).7 This involved adding a same-source first-order factor for our multiple-item measures (i.e., breach of psychological contract, trust, and cooperative employment relations)8 to the model to capture any systematic method variance. The overall fit of the model was significantly improved, ��2(8) � 168.12, p � .001, although there were no substantial effects on the magnitude or significance of our findings. Psychological contract breach was negatively associated with trust (� � �.758, p � .001), which then predicted perceptions of cooperative employment relations (� � .763, p � .001), which, in turn, led to absenteeism (� � �.173, p � .01). We did observe that the explained variance decreased from 70% to 59.2% and from 82.8% to 64% for trust and cooperative employment relations, respectively. In relation to absenteeism, however, the proportion of variance increased from 13.9% to 16.1%. In summary, we obtained similar findings for our original analysis after controlling for common method biases.

Interaction Effects

We expected that the relationship between contract breach and trust would be moderated by perceptions of external market pres- sures (see Hypothesis 4), whereas available job alternatives would moderate the relationship between perceptions of cooperative em- ployment relations and absenteeism (see Hypothesis 5).9 To test these two interactions, a nested goodness-of-fit strategy with a multiple-group solution was used (see Jaccard & Wan, 1996, for the procedure).10 In the first step, the fit of the model was calcu- lated by means of a chi-square test. In this test, parameters were estimated using LISREL for the respective high and low external market pressures and perceived available job alternatives using mean splits,11with no across-group constraints imposed. In the second step, the same procedure was followed, except that across- group constraints were imposed. An interaction effect is present when the chi-square change between the unconstrained and con- strained model is significant. We found interaction effects for perceived external market pressures, �2(1) � 4.78, p � .05, but not for available job alternatives, �2(1) � 2.47, p � .05.12 Specifi-

cally, contract breach had a significantly stronger negative effect when perceived external market pressures were low (� � �.885, SE � .09, p � .05) than when perceived pressures were high (� � �.728, SE � .06, p � .05). The implications of these findings are outlined below.

Discussion

The study found that perceptions of a shared psychological contract breach were associated with higher absenteeism. Employ- ees who believed that their organization had not fulfilled its obligations to them and their fellow customer service workers were significantly less likely to trust their organization. This, in turn, was associated with perceptions of less cooperative employ- ment relations and higher levels of absence. Perceptions of exter- nal market pressures were seen to mitigate the negative effect of contract breach on absenteeism. However, the availability of at- tractive job alternatives did not affect the relationship between perceptions of employer– employee cooperation and absence behavior.

The research confirmed the important link between psycholog- ical contract breach and the erosion of trust (Robinson & Rous- seau, 1994). A loss of trust can seriously undermine an employee’s

7 We acknowledge the limitations of this approach in that we had to constrain two of the method factor loadings to be equal to address identi- fication problems (MacKenzie, Podsakoff, & Paine, 1999; Podsakoff et al., 2003).

8 We did not include the absenteeism measure, as it was supplied to respondents from their personnel records.

9 In additional analyses, external market pressures (� � .001, p � .05) and available job alternatives (� � .038, p � .05) failed to have significant main effects on trust and absenteeism, respectively. We also found no significant effects of common method bias for these analyses.

10 Ping (1998) has provided general support for this estimation technique. 11 We obtained similar results using median splits. 12 The explained variance for the interaction effect of perceived external

market pressures was a significant .8%, F(1, 417) � 5.77, p � .05; and for perceived available job alternatives, the explained variance was a nonsig- nificant .1%, F(1, 17) � 0.294, p � .05.

Table 2 LISREL (Standardized) Results for Trust, Cooperative Employment Relations, and Absenteeism

Determinants Trust � Unique R2 Cooperative employment

relations � Unique R2 Absenteeism � Unique R2

Control variable Age .018 .017 �.069 Female �.020 �.122*** �.192*** Education .081* �.110*** �.114** Tenure �.047 �.016 �.108* Full time �.036 .032* �.173*** .057* .331*** .129*

Independent variable Breach of psychological contract �.827*** Trust — .893*** Cooperative employment relations — .668* — .771* �.100* .010*

R2 .700 .828 .139

Note. Dashes indicate that data were not obtained or are not reported. * p � .05, one-tailed. ** p � .01, one-tailed. *** p � .001, one-tailed.

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relationship with their employer. Judgments about organizational integrity and reliability can be thrown into question (Whitener et al., 1998). Expectations of an ongoing relationship based on rec- iprocity and fair dealing can be undermined, and individuals can become less confident about predicting their employer’s future actions and conduct (Lewicki & Bunker, 1996). This is particularly salient for those at the bottom of the organizational hierarchy where employees depend crucially on senior management for pay raises, promotion opportunities, and for their job responsibilities (Kramer, 1996). In this context, inconsistencies between actions and words can seriously damage trust between subordinates and their managers (Mishra, 1996).

In our study, employees reported inconsistencies between the company’s statements of intent and their actual practices. The collective-bargaining agreement contained promises about cus- tomer service excellence and pronouncements on employee prob- lem solving and recognition that were not fulfilled. The organiza- tion’s formal commitments helped construct expectations about the nature of the exchange relationship. Those expectations also shaped the nature of the psychological contract and created under- standings about what actions should be reciprocated by each party. There was evidence that the employees had developed a strong normative commitment to customer service excellence (Peccei & Rosenthal, 1997). For example, 98% of respondents agreed or strongly agreed with the statement “Staff have an obligation to provide the very best in customer service,” whereas 90% agreed or strongly agreed that “Customers have a right to expect superior treatment from all staff.” In contrast, the employees believed that the organization had failed to act in a way that was consistent with its implicit promises. For example, in a written comment drawn from the questionnaire, one respondent highlighted the apparent contradiction between the organization’s promised “new” ap- proach to employee initiative and its actual policy of compliance and control: “Management are not interested in customer service— their only interest is statistics [on throughput] . . . initiative is a dangerous quality in the ‘new’ [organization]. Compliance is a virtue.”

The failure of the company to implement successfully its prom- ised competency-based pay for performance system (known as CBS) led one employee to comment: “After the [CBS] process . . . which was an insult to my integrity . . . I would not trust, believe or rely on anything stated or signed by anyone from manager upward.” There was a perception that employees were not shown due respect for their knowledge and skills and that their opinions were not solicited despite formal policies on devolved responsi- bility and shared problem solving. As one respondent commented: “internally the relationship between the management and em- ployee is wider than ever,” whereas another respondent added that the company should “keep their promises . . . [and] recognize people if they do a good job.” The consequences of the company’s failure to fulfill its obligations were quite profound. Perceptions of contract breach were found to be negatively associated with trust and cooperation. This was confirmed by comments of the staff. One stated that “The whole Centre lacks trust . . . in management”; a second employee commented that the organization suffered from a “them and us attitude,” whereas a third employee complained that “it is difficult for me to enthusiastically and successfully work

in an environment where there is such a bitter attitude from my peers toward their jobs and workplace.”

It will be recalled that perceptions of a lack of employee– employer cooperation were associated with higher absenteeism. The nature and quality of the relationship between employees and their managers will affect the performance standards to which employees hold themselves accountable (Deery et al., 1999). A decline in cooperation can result in less discretionary effort and higher absenteeism (Rousseau, 1995). Taking greater time off work can also be part of the calculus used by employees to balance their relationship with the organization (Adams, 1965). Should employees perceive that the inducements or rewards they receive are inequitable relative to their contribution, they will adjust their contribution to that exchange relationship to restore balance. This can, as we have seen, involve a withdrawal of effort in the form of higher levels of absence from work. It is noteworthy, however, that those staff who believed that the organization faced increased competition and greater business pressures responded less nega- tively to the perceived nonfulfillment of the company’s obligations to its customer service staff.

Overall, these findings have important implications for manage- ment practice. Where organizations declare an intention to be customer-focused and committed to a complementary set of hu- man resource practices, they help to define their obligations to the staff. More important, these obligations will come to form part of the psychological contract with employees. Should the organiza- tion fail to live up to those expectations, employees may feel resentful and betrayed. This may generate a loss of trust and a less cooperative employment relationship and lead to a reduction in the contribution that employees make to the organization. Such be- havior can have serious implications for the quality of service provided by customer-contact employees (Schneider & Bowen, 1993; Wharton, 1993). Disaffection can spill over into negative interactions with customers and weaken performance (Batt, 2002). Organizations can, however, go some way to mitigating the ad- verse consequences of psychological contract breach by providing employees with credible explanations of the circumstances that led to the nonfulfillment of those contracts.

There are a number of limitations to this study. First, the research was cross-sectional, and causal inferences could not be drawn. The absence data were gathered at the same point in time as information on the other variables in the hypothesized model. A longitudinal design would have enabled data on subsequent ab- sences to have been collected and provided stronger evidence of a directional relationship between the variables. Second, the data were collected within a single organization and among one group of employees, which imposes limits on the generalizability of the findings. Studies in different organizational settings drawing on different types of workers would help verify the generalizability of our results.

Despite these limitations, the study does extend our understand- ing of psychological contract breach by expanding the sample base beyond managerial and professional employees to a group of front-line service workers who were employed under standardized employment arrangements and who experienced a common set of reciprocal obligations. The research showed that perceptions of a shared psychological contract breach were related to higher levels

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of individual absenteeism. It also revealed the importance of trust and cooperation as mediators between breach and absence taking. The level of cooperation between workers and managers in verti- cally linked relationships would appear to be particularly influen- tial in shaping employee reactions to perceived contract breaches.

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Received November 5, 2002 Revision received June 27, 2004

Accepted August 30, 2004 �

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