<PAGE>

                                                                   EXHIBIT 10.13

                             EMPLOYMENT AGREEMENT

     AGREEMENT, made as of this 25th day of January, 1999, by and among BSB BANK
& TRUST COMPANY, a New York-chartered commercial bank and trust company having
its principal place of business in Binghamton, New York (the "Bank"), BSB
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("BSB Bancorp") (the Bank and BSB Bancorp,
collectively, the "Employers"), and John P. Driscoll, an individual residing in
Skaneateles, New York (the "Executive").

     WHEREAS, the Executive has entered into an Employment Agreement dated as of
January 1, 1998 (the "Prior Agreement") with Skaneateles Bancorp, Inc., a
Delaware corporation ("Skaneateles Bancorp") and Skaneateles Savings Bank
("Skaneateles Bank");

     WHEREAS, Skaneateles Bancorp is expected to enter into an Agreement and
Plan of Merger on the date hereof with BSB Bancorp pursuant to which, among
other things, Skaneateles Bancorp will be merged with and into BSB Bancorp and
immediately thereafter Skaneateles Bank will be merged with and into BSB Bank
(collectively, such mergers are referred to as the "Merger");

     WHEREAS, the parties understand that, pursuant to the Prior Agreement, the
Executive may voluntarily terminate the Prior Agreement and his Employment
thereunder following a "Change in Control" (as defined in the Prior Agreement)
and, following such termination, the "Successor" (as defined in the Prior
Agreement) would be required to make certain payments to the Executive, subject
to the express terms and conditions of the Prior Agreement;

     WHEREAS, the Employers and the Executive desire that the Executive be
employed as the Executive Vice President of the Bank and BSB Bancorp effective
as of the closing of the Merger;

     WHEREAS, the parties understand that the Merger will constitute a "Change
in Control" (as defined in the Prior Agreement) and the Employers will be
"Successors" (as defined in the Prior Agreement);

     WHEREAS, the Employers have agreed that solely for purposes of applying
certain provisions of the Prior Agreement, the Executive will be deemed to have
voluntarily terminated his employment thereunder immediately after the closing
of the Merger;

     WHEREAS, the Boards of Directors of the Employers (collectively, the
"Boards"), have approved and authorized the Employers to enter into this
Agreement with the Executive; and

     WHEREAS, the parties desire to enter into this Agreement, setting forth the
terms and conditions for the employment relationship of the Executive with the
Employers:

     NOW, THEREFORE, it is AGREED as follows:

     1.   Employment.  Subject to and immediately following the closing of the
          ----------
Merger, the Executive shall be employed as the Executive Vice President of the
Bank and BSB Bancorp and shall serve in such capacity during the Employment Term
(as defined in Section 5 below).  As the Executive Vice President of the Bank
and BSB Bancorp, the Executive shall render executive, policy and other
management services to the Employers of the type customarily performed by
persons serving in a similar officer capacity and shall report to the Chief
Executive Officer(s) of the Employers, except as such Chief Executive Officer(s)
reasonably shall otherwise determine.  The Executive shall also perform such
duties as the Chief Executive Officer(s) of the Employers or the Boards may from
time to time reasonably direct.

     2.   Compensation.
          ------------

          (a)  The Employers agree to pay the Executive during the Employment
Term (defined below) a salary at an annual rate not less than $147,660. The
Executive's salary shall be increased in the sole and absolute discretion of the
Boards or committees thereof duly authorized by the Boards to so act.

          (b)  The salary of the Executive shall not be decreased at any time
during the Employment Term from the amount then in effect, unless the Executive
otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits, other than salary reduction programs in which the Executive elects to
participate, shall not reduce the salary payable to the Executive under this
Section 2. The salary under this Section 2 shall be payable to the Executive not
less frequently than monthly. The Executive shall not be entitled to receive
fees for serving as a director of the Employers or any of their subsidiaries or
for serving as a member of any committee of the Boards of Directors of the
Employers or any of their subsidiaries.

     3.   Business Expenses.  The Employers shall pay or reimburse the Executive
          -----------------
for the reasonable monthly cost, including dues, of maintaining his existing
memberships at the Skaneateles Country Club, Onondaga Country Club and Oak Hill
Country Club, up to $1,250 per month.  The Bank shall furnish the Executive with
the use of a suitable vehicle (including maintenance) which, unless otherwise
agreed in writing by the parties, shall be the same vehicle as is provided to
the Executive by Skaneateles Bank on the date of this Agreement.  To the extent
that the Employers authorize the Executive to incur other expenses, including
the reasonable costs of authorized

                                                                              50
<PAGE>

business entertainment and travel, in connection with the performance of his
duties hereunder, the Employers shall reimburse the Executive for such
authorized expenses promptly upon periodic presentation by the Executive of an
itemized account of such expenses.

     4.   Participation in Retirement and Employee Benefit Plans; Fringe
          --------------------------------------------------------------
Benefits.  During the Employment Term, the Executive shall be eligible to
participate in all incentive, bonus, management recognition, equity
compensation, retirement, deferred compensation, fringe benefit or welfare
benefit plans of the Employers that are applicable to executive employees
generally, including plans providing for stock options, restricted stock,
employee stock purchases, pension or retirement income, retirement savings,
employee stock ownership, deferred compensation and medical, prescription drug,
dental, disability, employee life, group life, accidental death and travel
accident insurance that the Employers may adopt or maintain for the benefit of
executive employees during the Employment Term, in accordance with the terms of
such plans.  Subject to Section 11 below, the Executive shall be entitled to any
vested retirement benefit payable to him under the terms of benefit plans and
arrangements sponsored or maintained by Skaneateles Bancorp and Skaneateles
Bank, including, without limitation benefits payable to him under the
Supplemental Retirement Agreement entered into as of January 1, 1998 by and
among Skaneateles Bancorp, Skaneateles Bank and the Executive.

     5.   Term.  The term of employment under this Agreement shall commence on
          ----
the date of the closing of the Merger and shall end on December 31, 2001 (the
"Employment Term").  The Employment Term may be extended by written agreement
executed by the Employers and the Executive.

     6.   Standards. The Executive shall perform his duties and responsibilities
          ---------
under this Agreement in accordance with such reasonable standards as may be
established from time to time by the Boards and communicated in writing to the
Executive.  The reasonableness of such standards shall be measured against
standards for executive performance generally prevailing in the financial
institutions industry.

     7.   Voluntary Absences; Vacations.  The Executive shall be entitled,
          -----------------------------
without loss of pay, to absent himself voluntarily for reasonable periods of
time from the performance of his duties and responsibilities under this
Agreement.  All such voluntary absences shall count as paid vacation time,
unless the Boards otherwise approve.  The Executive shall be entitled to paid
vacation days totaling 20 business days per year.  The timing of paid vacations
shall be scheduled in a reasonable manner by the Executive.

     8.   Termination of Employment.
          -------------------------

          (a)  (i)   Subject to the other provisions of this Agreement, the
Employers may terminate the Executive's employment at any time.

               (ii)  Except as specifically provided in Section 10 of the Prior
Agreement, the Executive shall have no right to receive compensation or other
benefits for any period after he voluntarily terminates of his employment
without "Good Reason" (as defined below) or the Employers involuntarily
terminate his employment for Cause. "Cause" shall mean the Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, willful 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 of the Federal Deposit Insurance Corporation ("FDIC") or
a material breach of any provisions of this Agreement. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Employers; provided that any act or omission to act on the
Executive's behalf in reliance upon an opinion of counsel satisfactory to the
Employers shall not be deemed to be willful.

               (iii) The parties acknowledge and agree that damages that will
result to the Executive for involuntary termination without Cause shall be
extremely difficult or impossible to establish or prove, and agree that, subject
to Section 11 of this Agreement, unless such involuntary termination is for
Cause, the Employers shall be obligated, following such termination, to continue
to pay to the Executive compensation in accordance with Section 2 hereof for the
remaining term of this Agreement. The amounts payable to the Executive hereunder
following termination without Cause during the first 12 months of the Employment
Term shall be reduced to the extent of the Executive's earned income (within the
meaning of section 911(d)(2)(A) of the Internal Revenue Code of 1986, as amended
(the "Code")) during the period for which the Executive's compensation continues
to be paid hereunder and the Executive shall provide the Employers prompt
written notice of the amount of such earned income. In the event of termination
of the Executive's employment after the first 12 months of the Employment Term,
the amounts payable hereunder shall not be reduced by the Executive's earned
income (as defined above) after termination of his employment with the
Employers. The Executive agrees that, except for such other payments and
benefits to which the Executive may be entitled as expressly provided by the
terms of this Agreement and the Prior Agreement, the payments provided for under
this Section 8(a)(iii) shall constitute liquidated damages and shall be in
complete satisfaction of the Employers' obligations under this Agreement.

                                                                              51
<PAGE>

               (iv) In addition to the liquidated damages above described that
are payable to the Executive, subject to Section 11 of this Agreement, in the
event of any such termination without Cause, during the period in which payments
are required to be made under Section 8(a)(iii) above, or such longer period as
may be provided by the terms of the appropriate plan, the Employers shall
continue in effect all medical, prescription drug, dental, disability, employee
life, group life and accidental death insurance and other employee welfare plans
for the benefit of the Executive and, if applicable, the Executive's family,
which would have been provided to them in accordance with Section 4 of this
Agreement if the Executive's employment had not been terminated; provided,
however, that if the Executive is eligible to receive medical, prescription drug
or dental benefits under an employee benefits plan sponsored by a subsequent
employer, the medical prescription drug and dental benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility.

               (v)  If the Executive voluntarily terminates his employment with
the Employers during the Employment Term for "Good Reason," such termination
shall be deemed to have been an involuntary termination by the Employers of the
Executive's employment without Cause. "Good Reason" shall mean:

                    (1)  the assignment to the Executive by the Employers (or
either of them) of duties materially inconsistent with the Executive's position,
duties, responsibilities, and status as Executive Vice President of the
Employers, a material adverse change in the Executive's titles or offices, any
removal of the Executive from or any failure to reelect the Executive to any of
such officer positions, except in connection with the termination of his
employment for Cause, or any action that would have a material adverse effect on
the physical conditions in which or location at which the Executive performs his
employment duties;

                    (2)  a reduction by the Employers in the Executive's salary
under Section 2(a) without the Executive's consent; or

                    (3)  any other action or inaction that constitutes a
material breach by the Employers or either of them of this Agreement or the
Prior Agreement.

          (b)  The Executive shall have no right to terminate his employment
under this Agreement before the end of the Employment Term, unless (i) such
termination is approved by the Boards or (ii) such termination is with "Good
Reason" as defined above. In the event that the Executive violates this
provision, the Employers shall be entitled, in addition to their other legal
remedies, to enjoin the employment of the Executive with any significant
competitor of the Employers (or either of them) for a period of one year or the
then remaining Employment Term plus six months, whichever is less. The term
"significant competitor" shall mean any commercial bank, savings bank, savings
and loan association, mortgage banking company or a holding company affiliate of
any of the foregoing which, at the date of its employment of the Executive, has
an office out of which the Executive would be primarily based that is located
within 75 miles of the Bank's office located at 431 East Fayette Street,
Syracuse, New York. If any court or other tribunal having jurisdiction to
determine the validity or enforceability of this paragraph determines that,
strictly applied, it would be invalid or unenforceable, the definition of
"significant competitor" and the time provisions used shall be deemed modified
to the extent necessary (but only to that extent) so that the restrictions in
that subsection, as modified, will be valid and enforceable.

          (c)  In the event the employment of the Executive is terminated by the
Employers without Cause under Section 8(a) hereof and the Employers fail to make
timely payment of the amounts then owed to the Executive under this Agreement,
the Executive shall be entitled to reimbursement for all reasonable costs,
including attorneys' fees, incurred by the Executive in taking action to collect
such amounts or otherwise to enforce this Agreement, plus interest on such
amounts at the rate of one percent above the prime rate (defined as the base
rate on corporate loans at large U.S. money center commercial banks as published
by The Wall Street Journal), compounded monthly, for the period from the date of
employment termination until payment is made to the Executive. Such
reimbursement and interest shall be in addition to all rights which the
Executive is otherwise entitled to under this Agreement.

          (d)  In the event of the Executive's death during the Employment Term,
his estate shall be entitled to receive any unpaid salary or other compensation
owing to the Executive. This Agreement shall thereupon terminate, except that
any vested rights of the Executive shall then be exercised by his estate.

          (e)  In the event the Executive becomes disabled during the Employment
Term under circumstances that would entitle him to benefits under the Bank's
long-term disability plan and, as a result of such disability, he is unable to
perform his duties hereunder for an uninterrupted period of more than six
months, the Employers may terminate the Executive's employment without liability
under Section 8(a) hereof and this Agreement shall thereupon terminate. Any such
termination shall not affect the Executive's rights to benefits pursuant to any
applicable long-term disability plan of the Employers.

          (f)  Notwithstanding any other provision in this Agreement, (i) the
Employers may terminate or suspend this Agreement and the employment of the
Executive hereunder, as if such termination were for Cause under Section 8(a)
hereof, to the extent required by the applicable laws of the State of New York
related to banking,

                                                                              52
<PAGE>

by applicable federal law relating to deposit insurance or bank holding
companies or by regulations or orders issued by the New York State Banking
Department, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation or other state or federal banking regulatory
agency having jurisdiction over BSB Bancorp or the Bank and (ii) no payment
shall be required to be made to or for the benefit of the Executive under this
Agreement to the extent such payment is prohibited by applicable law, regulation
or order issued by a banking agency or a court of competent jurisdiction;
provided, that it shall be the Employers' burden to prove that any such action
was so required.

     9.   Prior Agreement.  The parties agree that, solely for purposes of
          ---------------
applying the Prior Agreement, the Executive shall be deemed to have voluntarily
terminated the Prior Agreement and his employment thereunder immediately after
the closing of the Merger, and that such voluntary termination of the Prior
Agreement shall not affect his entitlement to the payments and benefits
specified in Section 10 of the Prior Agreement, which payments and benefits
shall be made and provided to the Executive within 30 days after the closing of
the Merger.  The Executive represents and warrants to the Employers that he has
provided to them true and correct copies of Wage and Tax Statements (Forms W-2)
reflecting his annual compensation from Skaneateles Bank that was includible in
his gross income for federal income tax purposes for his taxable years ended
December 31, 1994, 1995, 1996, 1997 and 1998.  Based upon such compensation
amounts, the parties understand that the amount described in Section 10(c) of
the Prior Agreement is $435,089.  Payments made and benefits provided in
accordance with the Prior Agreement are in addition to payments to be made and
benefits to be provided to the Executive under this Agreement; provided, however
that the Employers shall not be required to provide the Executive with any
"Benefits" (as defined in the Prior Agreement) that are duplicative of benefits
provided to the Executive under this Agreement.  Except for their obligations as
"Successors" under Section 10 of the Prior Agreement, the Employers shall have
no liability to the Executive under the Prior Agreement after the Merger.

     10.  Confidential Information.
          ------------------------

          (a)  The Executive acknowledges that the information, observations and
data obtained by the Executive concerning the business and affairs of the
Employers during the course of the Executive's employment are the property of
the Employers, including information concerning acquisition opportunities in or
reasonably related to the business or industry of the Employers of which the
Executive becomes aware during such period. Therefore, the Executive agrees that
he will not at any time (whether during or after the Employment Term) disclose
to any unauthorized person or, directly or indirectly, use for the Executive's
own account, any of such information, observations or data without the consent
of the Boards, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a direct or
indirect result of the Executive's unauthorized acts or omissions to act or the
unauthorized acts or omissions to act of other employees of the Employers. The
Executive agrees to deliver to the Employers at the termination of the
Executive's employment, or at any other time the Employers may request in
writing (whether during or after the Employment Term), all memoranda, notes,
plans, records, reports and other documents, regardless of the format or media
(and copies thereof), relating to the business of the Employers and their
predecessors (including, without limitation, all acquisition prospects, lists
and contact information) which the Executive may then possess or have under the
Executive's control.

          (b)  The Executive acknowledges that the restrictions contained in
this Section 10 hereof are reasonable and necessary, in view of the nature of
the Employers' business, in order to protect the legitimate interests of the
Employers, and that any violation thereof would result in irreparable injury to
the Employers. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 10(a) hereof,
the Employers shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Employers from pursuing any other
remedies available to them for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.

     11.  Parachute Payment Limitation.  Notwithstanding any other provisions of
          ----------------------------
this Agreement, the Prior Agreement or any other agreement, contract, or
understanding heretofore or hereafter entered into by the Executive with
Skaneateles Bancorp, Skaneateles Bank, BSB Bancorp, the Bank, or any subsidiary
or affiliate of any of them (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
Skaneateles Bancorp, Skaneateles Bank, BSB Bancorp, the Bank or any such
subsidiary or affiliate for the direct or indirect provision of compensation to
the Executive (including groups or classes of participants or beneficiaries of
which the Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for the Executive (a "Benefit
Plan"), the Executive shall not have any right to receive any payment or other
benefit under this Agreement, the Prior Agreement, any Other Agreement, or any
Benefit Plan if such payment or benefit, taking into account all other payments
or benefits to or

                                                                              53
<PAGE>

for the Executive under this Agreement, the Prior Agreement, all Other
Agreements, and all Benefit Plans, would cause any such payment to the Executive
to be considered a "parachute payment" within the meaning of Section 280G(b)(2)
of the Code (a "Parachute Payment"). In the event that the receipt of any such
payment or benefit under this Agreement, the Prior Agreement, any Other
Agreement, or any Benefit Plan would cause the Executive to be considered to
have received a Parachute Payment, then the Executive shall have the right, in
the Executive's sole discretion, to designate those payments or benefits under
this Agreement, the Prior Agreement, any Other Agreements, and/or any Benefit
Plans, which should be reduced or eliminated so as to avoid having the payment
to the Executive under this Agreement be deemed to be a Parachute Payment. In
the event that there is a dispute between the parties as to whether, or the
extent to which, a reduction in such payments to the Executive is required to
prevent such payment from constituting a Parachute Payment, the parties agree
that they shall be bound by the determination of such matter by a national
accounting firm selected jointly by the Bank and the Executive (or, if they are
unable to agree, chosen by lot from among an equal number of nominees designated
by the Bank and the Executive); provided, however that the firm selected shall
not be the accounting firm that is then serving as the auditor of the Employers
unless the Executive consents in writing to such selection. In the event that
the Executive would otherwise be deemed to have received an amount that would
constitute a Parachute Payment, the amount paid to him that exceeds the maximum
amount permissible under this Section 11 shall be treated as a loan to him and
shall be repaid, with interest, to the extent necessary to reduce the amount
paid to the maximum permissible amount. Any such loan shall be repaid in full
six months after (a) the date on which the Bank notifies the Executive that a
loan relationship exists, if there is no dispute as to whether, or the extent to
which, a reduction is required, or (b) the date on which the Executive and the
Bank receive the written opinion of a national accounting firm (selected in the
manner described above), if there is such a dispute, and may be repaid by the
Executive without prepayment penalty at any time during such six month period.

     12.  Miscellaneous.
          -------------

          (a)  No Assignment.  This Agreement is personal to each of the parties
               -------------
hereto. No party may assign or delegate any of his or its rights or obligations
hereunder without first obtaining the written consent of the other party hereto.
However, in the event of the death of the Executive, all of his rights to
receive payments hereunder shall become rights of his estate as provided in
Section 8(d) hereof.

          (b)  Other Contracts.  The Executive shall not, during the Employment
               ---------------
Term, have any other paid employment other than with a subsidiary or affiliate
of the Employers, except with the prior written approval of the Boards.

          (c)  Amendments or Additions; Action by Boards.  No amendments or
               -----------------------------------------
additions to this Agreement shall be binding unless in writing and signed by all
parties hereto. The prior approval by a majority affirmative vote of the Boards
shall be required in order for the Employers to authorize any amendments or
additions to this Agreement or to give any consents or waivers of provisions of
this Agreement, or to terminate the Executive's employment with or without Cause
under Section 8(a) hereof.

          (d)  Section Headings.  The section headings used in this Agreement
               ----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.

          (e)  Severability.  The provisions of this Agreement shall be deemed
               ------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

          (f)  Governing Law.  This Agreement shall be governed by the laws of
               -------------
the United States, where applicable, and otherwise by the laws of the State of
New York other than the choice of law rules thereof.

          (g)  Notice.  For the purposes of this Agreement, notices and all
               ------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Employers:

                           BSB BANK & TRUST COMPANY
                           58-68 Exchange Street
                           Binghamton, New York 13902
                           Attention:  Chief Executive Officer

or if to the Executive:    John P. Driscoll
                           4 West Lake Street
                           Skaneateles, New York  13152

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.

                                                                              54
<PAGE>

          (h)  Counterparts.  This Agreement may be executed in several
               ------------
counterparts, for the convenience of the parties, but shall constitute one and
the same instrument.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
or caused this Agreement to be duly executed on their behalf, as of the date and
year first above written.

Attest:                             BSB BANK & TRUST COMPANY

/s/ Larry G. Denniston              By:  /s/ Alex S. DePersis
----------------------                   --------------------



Attest:                             BSB BANCORP, INC.

___________________________         By:  /s/ Alex S. DePersis
                                         --------------------

                                    By:  /s/ John P. Driscoll
                                         --------------------
                                         John P. Driscoll
                                         Executive

                                                                              55