From shifting economic policy to disrupted supply chains, there seems to be no lack of challenges for businesses nowadays. Rising inflation, shifting interest rates, labor shortages and geopolitical tensions can make things worse, pushing businesses into a crisis mode. To survive, companies sometimes must resort to extreme measures such as freezing salary increases, changing benefits, cutting employees' perks or reducing headcount.
For employees, such drastic changes can give rise to a phenomenon known as the "psychological contract breach," a perception that an organization has failed to meet its obligations and promises. "To employees, it could mean that the organization didn't deliver on the promise it has made to them, such as salary increases, reliable benefits, and overall long-term stability of their job," says Assistant Professor Haoying (Howie) Xu who studies organizational behavior and human resource management at Stevens School of Business.
These upheavals may affect employees' morale and trigger counterproductive behaviors, including "punishing" the company for its contract breach. "Some people may come to work late or become less involved with their duties," Xu says. Others may " quiet quit ," which means that while they aren't resigning, they don't engage in work efforts beyond what's absolutely necessary. "It's the ideology of 'I come in because I am required to come in, I do the bare minimum, and then I just go home,'" explains Xu.
In some extreme cases, the effects of the psychological contract breach can be more severe and more damaging. Some employees may speak negatively and pejoratively about their employers outside the organization. "That may destroy the organization's external reputation," Xu says.
With crises becoming more common, Xu wanted to investigate how companies can minimize the negative consequences on their relationship with workforce. So Xu and his collaborators, Meng Zhong at the University of Nottingham Ningbo China, Sandy Wayne at the University of Illinois Chicago, and Eric Michel at Northern Illinois University, conducted a research work to understand how employees react to psychological contract breaches and what shapes their perception of whether the company is at fault — or not.
Xu and his colleagues conducted a survey of employees based in the United States across various industries, asking questions about their reaction to a psychological contract breach in the context of the Covid-19 pandemic. The collaborators also created a hypothetical psychological contract breach scenario and asked participants how they would react if faced with such a situation.
The study found that corporate social responsibility played a major role in shaping employees' perception. Corporate social responsibility is a practice in which companies integrate social and environmental concerns into their operations to have a positive impact on society. "For example, corporations may give money to nonprofits, raise funds for specific groups, sponsor environmental initiatives or support other charitable causes," says Xu.
The study found that when companies actively engage in corporate social responsibility, employees are more likely to forgive their employer for such breaches. That's because when employees think of their company as conscientious, kind and socially responsible, they believe that the company didn't intentionally commit the breach but was forced to do so due to circumstances beyond its control. "As the proverb goes," Xu says. "'a good deed is never lost'— and it applies to the companies' reputation too."
Titled Insurance-like Effects of Corporate Social Responsibility in Understanding Employees' Responses to Psychological Contract Breach During a Crisis, the study was published on November 30, 2025, in the European Journal of Work and Organizational Psychology.
Xu clarifies that while corporate social responsibility is essential, it's not the only thing that matters during crises. Companies also must figure out a plan to repair the psychological contract breach. "Organizations should find ways to make it up to the employees, compensate for their sacrifices, and figure out a feasible way to help them through the crisis. And companies have to engage employees into this plan, so that they feel part of the effort and part of the solution."
What's important, however, is that the investment into corporate social responsibility is ideally to be done before the crisis to shape the employee's opinion of the company as kind and conscientious. It helps organizations gain positive moral capital. "It's like an insurance policy," Xu says.
"We buy insurance for so many other aspects of life—car insurance, health insurance, life insurance," he points out. "So investing into corporate social responsibility is like buying an insurance for your reputation among your employees." And he adds, "In today's world that insurance policy will go a long way."
About Stevens Institute of Technology
Stevens is a premier, private research university situated in Hoboken, New Jersey. Since our founding in 1870, technological innovation has been the hallmark of Stevens' education and research. Within the university's three schools and one college, more than 8,000 undergraduate and graduate students collaborate closely with faculty in an interdisciplinary, student-centric, entrepreneurial environment. Academic and research programs spanning business, computing, engineering, the arts and other disciplines actively advance the frontiers of science and leverage technology to confront our most pressing global challenges. The university continues to be consistently ranked among the nation's leaders in career services, post-graduation salaries of alumni and return on tuition investment.
