This study examines how digital natives experience psychological contracts (PCs) in AI-augmented workplaces, focusing on generative AI (G-AI) and its impact on workplace outcomes. Based on data from 415 Indian digital natives, we find that G-AI-induced PC breach harms workplace outcomes. Relational and transactional contract fulfillment buffer these negative effects but become less effective as breach levels increase. By integrating macro-level AI tensions and ethical principles with micro-level employee perceptions, the study highlights the dual nature of PCs. These findings provide actionable insights for designing AI systems that mitigate breaches and enhance workplace experiences in AI-augmented environments.
