<PAGE>
 
                                                                    EXHIBIT 10.7

                        WORONOCO SAVINGS BANK CHANGE IN
                               CONTROL AGREEMENT


         This AGREEMENT is made effective as of March 19, 1999, by and among
Woronoco Savings Bank (the "Institution" or the "Bank"), a
Massachusetts-chartered savings bank, with its principal administrative office
at 31 Court Street, Westfield, Massachusetts, 01086-0978, James E. Gardner
("Executive"), and Woronoco Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware which is the holding company
of the Institution.

         WHEREAS, the Institution recognizes the substantial contribution
Executive has made to the Institution and wishes to protect Executive's position
therewith for the period provided in this Agreement; and

         WHEREAS, Executive has agreed to serve in the employ of the
Institution.

         NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:

1.       TERM OF AGREEMENT.
         -----------------

         The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement and continuing at each anniversary
date thereafter, the Board of Directors of the Institution ("Board") may extend
the Agreement for an additional year. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.

2.       CHANGE IN CONTROL.
         -----------------

         (a) Upon the occurrence of a Change in Control of the Institution or
the Holding Company (as herein defined) followed at any time during the term of
this Agreement by the termination of Executive's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control; provided, however, the
Executive may consent in writing to any such demotion, loss, reduction or
<PAGE>
 
relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.

         (b) For purposes of this Agreement, a "Change in Control" shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. ss. 303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. ss. 225.41(b) with
respect to the Holding Company, as in effect on the date hereof; or (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. ss. 225.11, as in effect on the date hereof except for the Holding
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any tax qualified employee benefit plan of the Bank; or
(B) individuals who constitute the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.

         (c) Executive shall not receive termination benefits pursuant to
Section 3 hereof upon Termination for Cause. The term "Termination for Cause"
shall mean termination because of Executive's personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
Notwithstanding the foregoing,

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<PAGE>
 
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 4 hereof through the
Date of Termination, stock options granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested stock awards granted to
Executive under any stock benefit plan of the Institution, the Holding Company
or any subsidiary or affiliate thereof vest. At the Date of Termination, such
stock options and such unvested stock awards shall become null and void and
shall not be exercisable by or delivered to Executive at any time subsequent to
such Date of Termination for Cause.

3.       TERMINATION BENEFITS.
         --------------------

         (a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Institution and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, a sum equal to three (3) times Executive's "Average Annual
Compensation" (as defined herein) for the five most recent taxable years that
Executive has been employed by the Institution or such lesser number of years in
the event that Executive shall have been employed by the Institution for less
than five years, such "Average Annual Compensation" shall include all taxable
income paid by the Bank, including but not limited to any base salary, bonuses,
and commissions paid or to be paid to Executive, as well as contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.

         (b) Upon the occurrence of a Change in Control of the Institution or
the Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Institution
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of thirty-six (36) full calendar months
from the Date of Termination.

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<PAGE>
 
         (c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986, as amended, or any successor thereto, and in order to avoid such a result
Termination Benefits will be reduced, if necessary, to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount," as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs of
this Section 3 shall be determined by Executive.

4.       NOTICE OF TERMINATION.
         ---------------------

         (a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

         (b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).

         (c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.

5.       SOURCE OF PAYMENTS.
         ------------------

         It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company 

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<PAGE>
 
guarantees such payment and provision of all amounts and benefits due hereunder
to Executive and, if such amounts and benefits due from the Institution are not
timely paid or provided by the Institution, such amounts and benefits shall be
paid or provided by the Holding Company.

6.       EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
         -----------------------------------------------------

         This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.

         Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.

7.       NO ATTACHMENT.
         -------------

         (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

         (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.

8.       MODIFICATION AND WAIVER.
         -----------------------

         (a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

         (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

9.       REQUIRED REGULATORY PROVISIONS.
         ------------------------------

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         Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and
regulations promulgated thereunder.

10.      SEVERABILITY.
         ------------

         If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

11.      HEADINGS FOR REFERENCE ONLY.
         ---------------------------

         The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.

12.      GOVERNING LAW.
         -------------

         The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts
applicable to contracts entered into and to be performed entirely within the
Commonwealth of Massachusetts.

13.      ARBITRATION.
         -----------

         Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.

14.      PAYMENT OF COSTS AND LEGAL FEES.
         -------------------------------

         All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Institution (which payments are guaranteed by
the Holding Company pursuant to Section 5 hereof) if Executive is successful on
the merits pursuant to a legal judgment, arbitration or settlement.

15.      INDEMNIFICATION.
         ---------------

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<PAGE>
 
         (a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.

         (b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R.
Part 359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.

16.      SUCCESSOR TO THE INSTITUTION.
         ----------------------------

         The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.

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<PAGE>
 
                                  SIGNATURES

         IN WITNESS WHEREOF, Woronoco Savings Bank and Woronoco Bancorp, Inc.
have caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 12th day of May, 1999.


ATTEST:                                WORONOCO SAVINGS BANK


/s/ Terry J. Bennett                   By: /s/ Cornelius D. Mahoney 
------------------------                   --------------------------------- 
Terry J. Bennett                           Cornelius D. Mahoney 
Corporate Secretary                        For the Entire Board of Directors


SEAL




ATTEST:                                WORONOCO BANCORP, INC.



/s/ Terry J. Bennett                   By: /s/ Cornelius D. Mahoney 
------------------------                   ---------------------------------  
Terry J. Bennett                           Cornelius D. Mahoney 
Corporate Secretary                        For the Entire Board of Directors



SEAL




WITNESS:                               EXECUTIVE


/s/ Terry J. Bennett                   /s/ James E. Gardner 
------------------------               ---------------------------------  
Terry J. Bennett                       James E. Gardner 
Corporate Secretary

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