Can collective enterprise bargaining affect the psychological contract? An analysis of the 2011 Australian public service negotiations.

Author:Williamson, Sue
Position::Contributed Article - Report


This article explores how the process of collective workplace bargaining has an impact on employees' psychological contracts in the Australian Public Service. Based on two case studies from the 2011 bargaining round, the researchers identify the bargaining parties' expectations, perceptions of whether or not the negotiations were based on trust and fairness, and whether employees considered that their employer had reneged on the deal. It is found that the bargaining process can reinforce employees' collective and individual sense of a breach of their psychological contract based on their perceptions that the employer is not delivering their side of deal, but expects ever-increasing employee contributions in a tighter fiscal environment. The article concludes that an emphasis on communication, procedural fairness, and maintaining employee trust can, nevertheless, repair and even sustain the relational elements of psychological contracts.

  1. Introduction

    This article explores how collective enterprise bargaining has an impact on an individual employee's relationship with their organisation. The psychological contract represents an employee's subjective perceptions of the mutual obligations that exist between them and their employer (Rousseau 1989). These perceptions maybe selective and partial; however, they can go beyond the content of written industrial agreements. As such, psychological contracts fill gaps in employee perceptions of their relationship with their employer. They can have an impact on daily work behaviours in subtle ways that cannot be fully codified in a written agreement (O'Donnell and Shields 2002). Where employees perceive that a breach of their psychological contract has occurred, their perception can give rise to negative attitudinal responses that can include feelings of resentment, anger, and betrayal.

    Terms and conditions of employment for the Australian Public Service (APS) have been established through collective enterprise negotiations since the mid-1990s. From the early 1990s, enterprise-based collective bargaining became increasingly dominant in Australia. It evolved through a raft of legislation that involved changes to the role of industrial tribunals and the rights of trade unions, including the emergence of a non-union bargaining stream under the Industrial Relations Reform Act, 1993. This was followed by individual contracts, restrictions on unions' rights of entry, and tighter regulation of industrial action under the Workplace Relations Act, 1996 and the Workplace Relations Amendment (Work Choices) Act, 2005 prior to a return to a more collectivist approach to bargaining and increased rights for union delegates under the Fair Work Act, 2009 (Cahan and Pekarek 2012, p. 196).

    While employers and governments have embraced enterprise bargaining as a means to increase workplace flexibility and productivity (McLaughlin 2012, p. 230), the shift from multi-employer bargaining under the system of arbitration and awards to single-employer bargaining has had profound implications for Australian trade unions. It has, broadly speaking, shifted the site of bargaining from a level where unions had relatively strong bargaining power to one where their power resources are weak. This is because many Australian unions do not have the workplace infrastructure, such as sufficient union delegates with the skills to bargain effectively, and they have found that enterprise bargaining 'leads to the heavy use of union resources and time' (Peetz 2012, p. 249). Nevertheless, unions and employees can use enterprise bargaining to express their collective dissatisfaction with their wages and working conditions. This is because an agreement is put to the vote and requires a majority of employees to vote in favour of it. The Community and Public Sector Union (CPSU) used this tactic across the APS in the 2011 bargaining round. In this round, the majority of APS employees rejected the initial agreements offered by their agencies; industrial action was undertaken in 11 agencies (CPSU 2012).This article explores the impacts of such widespread industrial unrest on employees' perceptions of mutual obligations and their psychological contracts with APS employers.

    Workplace bargaining can potentially interact with the psychological contract by making the deal that is being negotiated explicit (Sullivan et al. 2009, p. 14). Sullivan et a I's (2009) research suggests that the bargaining process itself can have an impact on the state of the psychological contract. Townsend et al. (2013, p. 113) found that bargaining which was prolonged, or which resulted in industrial action, undermined employees' trust in their organisation. These same researchers found, however, that enterprise bargaining can lead to increased employee participation and engagement, but it was unclear whether these positive effects lasted beyond the negotiations.

    Townsend et al. (2013) called for more research to be conducted in this area, and this present article goes some way towards filling this gap. Combining these two main areas, we ask: 'Can collective bargaining have an impact on an individual's psychological contract? 'We use three indicators to assess the impact of enterprise bargaining on the psychological contract. These are: the procedural fairness in bargaining; perceptions of whether the deal on offer was 'fair'; and whether a change had occurred in the relational and transactional elements of the psychological contract. This gives rise to another research question: 'Does collective bargaining give rise to a collective psychological contract?'

    The first section of this article reviews the literature on psychological contracts and how collective bargaining might have its impact on individual employee perceptions of whether the employer has fulfilled their promises. A discussion of methods is followed by an overview of negotiations in the APS over recent bargaining rounds. The third section provides an examination of the bargaining process in two agencies and of their employees' responses. The final section provides a discussion of the significance of these cases and a brief conclusion.

  2. Literature Review

    Rousseau (1995, p. 9), who is credited with popularising the psychological contract construct, defines it as 'individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization'. Prominent definitions of the psychological contract contain the element of perceived reciprocal obligations (Rousseau 1989, p. 123). As such, the psychological contract relies on an individual's perception that there is an obligation on both parties to reciprocate, even if the understanding of what is to be reciprocated differs between the parties (Sels et al. 2004; Coyle-Shapiro and Kessler 1998; Rousseau 1995). Employees reciprocate when they become aware that the employer has fulfilled their perceived obligations.

    The model proposed by Guest (1998) refers to causes, content, and consequences and is a valuable framework for examining the psychological contract, and one which we use to analyse the 2011 APS bargaining round. In Guest's model, the organisational climate (or culture), human resource management (HRM) policies and practices, and the experience, expectations, and alternatives available for employees cause, and inform, the psychological contract. The consequences of the management of the psychological contract include employees' intention to resign, job satisfaction, organisational commitment, sense of security, motivation, employment relations, organisational citizenship, and the level of absenteeism. The content refers to explanatory variables being the items exchanged, which Guest conceived as consisting of trust, fairness, and delivery of the deal.

    Psychological contracts are typically categorised based on the content of the perceived exchange. The most prevalent typology for psychological contracts is that of 'transactional' and 'relational', which are conceptualised as being at opposite ends of a spectrum (Rousseau and Mclean-Parks 1993). Relational psychological contracts involve a high level of trust in combination with substantial investment in the employee by the employer, an emphasis on socio-emotional rewards, and a long-term commitment by both parties to delivering valued benefits that will, in turn, be reciprocated (Shore et al. 2006). In contrast, the transactional psychological contract is associated with more of a short-term exchange linked to the delivery of a specified level of individual performance in return for an explicit monetary payment. There are few expectations of loyalty from employees and there are often low levels of trust in their employer (Rousseau and Tijoriwala 1996; Shore et al. 2006, p. 839). Rousseau observed that the predominant psychological contract in employment relationships in Western nations had shifted to one that was less 'relational' and more 'transactional' (Rousseau 1995; Rousseau 2003). Such findings have been supported by earlier research into the psychological contract in the Australian federal public sector (O'Donnell and Shields 2002, p. 440).

    Latornell (2007, p. 283) highlights that 'the interactions and communications between the organisation and its employees are the primary means by which employees learn and develop their psychological contract'. Employees form relationships with their supervisor, but also with their organisation, their team, and various other levels of management. Guest (2004, p. 547) recommends that researchers consider who is a party to the deal, particularly where there may be multiple exchanges.

    In relation to the consequences of the psychological contract, the literature has been predominantly concerned with the effect of breaches and violations. The term 'breach' generally refers to the employee's perception that the employer has failed to uphold their part of the deal. It involves a failure to fulfil...

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