A psychological contract, a concept developed in contemporary research by organizational scholar Denise Rousseau, represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form.

Although Rousseau's 1989 article as highlighted by Coyle-Shapiro "was very influential in guiding contemporary research", the concept of the psychological contract was first introduced by Chris Argyris (1960):

Since the foremen realize the employees in this system will tend to produce optimally under passive leadership, and since the employees agree, a relationship may be hypothesized to evolve between the employees and the foremen which might be called the "psychological work contract." The employee will maintain the high production, low grievances, etc., if the foremen guarantee and respect the norms of the employee informal culture (i.e., let the employees alone, make certain they make adequate wages, and have secure jobs).

Psychological contracts are defined by the relationship between an employer and an employee where there are unwritten mutual expectations for each side. A psychological contract is rather defined as a philosophy, not a formula or devised plan. One could characterize a psychological contract through qualities like respect, compassion, objectivity, and trust. Psychological contracts are formed by beliefs about exchange agreements and may arise in a large variety of situations that are not necessarily employer-employee. However, it is most significant in its function as defining the workplace relationship between employer and employee. In this capacity, the psychological contract is an essential, yet implicit agreement that defines employer-employee relationships. These contracts can cause virtuous and vicious circles in some circumstances. Multiple scholars define the psychological contract as a perceived exchange of agreement between an individual and another party. The psychological contract is a type of social exchange relationship. Parallels are drawn between the psychological contract and social exchange theory because the relationship's worth is defined through a cost-benefit analysis. The implicit nature of the psychological contract makes it difficult to define, although there is some consensus on its nature. This consensus identifies psychological contracts as "promissory, implicit, reciprocal, perceptual, and based on expectations."

These psychological contracts can be impacted by many things like mutual or conflicting morals and values between employer and employee, external forces like the nudge theory, and relative forces like Adams' equity theory.

The concept of psychological contract became more popular among researchers starting in the 1990s, but was named decades earlier in 1960 by Chris Argyris. As studies in industrial relations developed and grew more complex, it was revealed that employees are more likely to perform better in certain work environments. The works of Frederick Winslow Taylor in the first decades of the 20th century focused on how to enhance worker efficiency. Building upon this, Douglas McGregor developed Theory X and Theory Y in the 1950s to define two contrasting types of management styles that were each effective in attaining a certain goal. These differing management types hold different psychological contracts between employer and employee (described in more detail below in § The formation of the contract).

Works by Denise M. Rousseau and later described the psychological contract in more depth. Sandra L. Robinson indicated employees commonly reported a breach of the psychological contract within several years of beginning their position, and that the effects of contract breach negatively affected employee productivity and retention.

Maslach, Schaufeli and Leiter stated in 2001: