<PAGE>

                                                                   EXHIBIT 10.40

                             EMPLOYMENT AGREEMENT
                             --------------------



     Employment Agreement (the "Agreement"), dated February 16, 1996 by and
between Physicians Resource Group, Inc., a Delaware corporation (the "Company"),
and Daniel Chambers ("Employee").

     In consideration of the mutual premises and conditions contained herein,
the parties hereto agree as follows:

     Section 1.  EMPLOYMENT.  The Company hereby agrees to employ Employee, and
Employee hereby accepts employment by the Company, upon the terms and subject to
the conditions hereinafter set forth.

     Section 2.  DUTIES.  Employee shall serve as a Senior Vice President of the
Company. Employee agrees to devote his full time and best efforts to the
performance of his duties to the Company.  Employee will report to the Company's
President and Chief Executive Officer.

     Section 3.  TERM.  Except as otherwise provided in Section 6 hereof, the
term of this Agreement shall be for two (2) years, commencing on the date of
consummation of the Merger Agreement between the Company and Sun Valley
Acquisition Corporation (the "Commencement Date"), and shall be automatically
renewed thereafter for successive one year terms unless either party gives to
the other written notice of termination no fewer than sixty (60) days prior to
the expiration of any such term that it does not wish to extend this Agreement.

     Section 4.  COMPENSATION AND BENEFITS.  In consideration for the services
of the Employee hereunder, the Company will compensate Employee as follows:

          (a) Base Salary. Commencing on the Commencement Date, Employee shall
     be entitled to receive a base salary of $125,000 per annum or as increased
     from time to time by the Board of Directors of the Company.

          (b) Bonus. Employee shall be eligible to receive an annual cash bonus
     in an amount determined to be appropriate by the Compensation Committee of
     the Board of Directors of the Company in accordance with the criteria for
     such bonuses which may be adopted from time to time by said committee.

          (c) Benefits. The Company shall grant Employee an option to purchase
     70,000 shares of the Company's Common Stock, with the per share exercise
     price being the closing sale price for the Company's Common Stock on the
     New York Stock Exchange on the Commencement Date and on other terms that
     are consistent with the terms of the stock option plans adopted by the
     Company pursuant to which the options are granted and the

                                       1
<PAGE>

     provisions of Section 7 hereof. Such options will vest over a period of
     five years. In addition, during the term of this Agreement, Employee shall
     be entitled to participate in and receive benefits under any and all
     employee benefit plans and programs which are from time to time generally
     made available to the executive employees of the Company, subject to
     approval and grant by the appropriate Company committee with respect to
     programs calling for such approvals or grants.

     Section 5.  EXPENSES.  It is acknowledged by the parties that Employee, in
connection with the services to be performed by him pursuant to the terms of
this Agreement, will be required to make payments for travel, entertainment of
business associates and similar expenses.  The Company will reimburse Employee
for all reasonable expenses of types authorized by the Company and incurred by
Employee in the performance of his duties hereunder.  Employee will comply with
such budget limitations and approval and reporting requirements with respect to
expenses as the Company may establish from time to time.

     Section 6.  TERMINATION.  Employee's employment hereunder will commence on
the Commencement Date and continue until the end of the term specified in
Section 3 hereof and any renewals of such term, except that the employment of
Employee hereunder will terminate earlier in the following manner:

          (a) Death or Disability. Immediately upon the death of Employee during
     the term of his employment hereunder or, at the option of the Company, in
     the event of Employee's disability, upon 30 days notice to Employee.
     Employee will be deemed disabled if, as a result of Employee's incapacity
     due to physical or mental illness, Employee shall have been absent from his
     duties with the Company on a full-time basis for 120 consecutive business
     days;

          (b) For Cause. For "Cause" immediately upon written notice by the
     Company to Employee. For purposes of this Agreement, a termination will be
     for Cause if: (i) Employee willfully and continuously fails to perform his
     duties with the Company (other than any such failure resulting from
     incapacity due to physical or mental illness), (ii) Employee willfully
     engages in gross misconduct materially and demonstrably injurious to the
     Company or (iii) Employee has been convicted of a felony;

          (c) Termination Upon Anniversary. Upon the occurrence of any annual
     anniversary of the Commencement Date, in the event that one party has
     provided to the other 60 days prior written notice of its election to
     terminate this Agreement.

     Employee will not be entitled to any severance pay or other compensation
upon termination of Employee's employment pursuant to Subsections (a) or (b) or
Section 3 or in the event that Employee voluntarily leaves the employment of the
Company either pursuant to Section 3 or Section 6(c) except for any portion of
Employee's base salary accrued but unpaid from the last payment date to the date
of termination and expense reimbursements under Section 5 hereof for

                                       2
<PAGE>

expenses incurred in the performance of Employee's duties hereunder prior to
termination.  In the event Employee's employment with the Company is terminated
by the Company other than pursuant to Section 3 or Subsections 6(a) or (b)
above, the Company will pay Employee, as Employee's sole remedy in connection
with such termination, severance pay in the amount of Employee's monthly base
salary at the rate in effect immediately preceding the termination of Employee's
employment for 12 months after the termination of Employee's employment (the
"Separation Payment Period"), which severance pay will be paid by the Company in
equal monthly payments in arrears.  The Company will also pay Employee the
portion of his base salary accrued but unpaid from the last payment date to the
date of termination and expense reimbursements under Section 5 hereof for
expenses incurred in the performance of his duties hereunder prior to
termination.

     Section 7.  Effect of Termination on Options.  Options held by the Employee
will automatically expire upon the date of termination of Employee's employment
if (i) the Employee's employment with the Company is terminated pursuant to
Section 3 or Section 6(b) or (ii) if the Employee voluntarily leaves the
employment of the Company either pursuant to Section 3 or Section 6(c).  If the
Employee dies while employed by the Company, Employee's options shall become
fully exercisable on the date of Employee's death and shall expire twelve months
thereafter.  If this Agreement is terminated by the Company pursuant to Section
6(c) above or for any other reason than termination for Cause, (i) the options
that are vested as of the date of termination shall remain exercisable for a
period of twelve months after the date of termination and shall expire at the
end of such twelve month period, (ii) the options that would have vested during
the twelve months following termination shall vest upon termination, remain
exercisable for a period of twelve months after the date of termination and
expire at the end of such twelve month period, and (iii) any other options shall
automatically expire.

     Section 8.  CHANGE IN CONTROL TERMINATION PAYMENT.

          (a)  Termination Payment.

               (i) Amount. Notwithstanding anything to the contrary contained in
          Section 7 hereof, in the event Employee's employment with the Company
          terminates for any reason (other than death) within the twelve month
          period following a Change In Control (as defined in subsection 8(b)
          hereof) occurring after the Commencement Date, the Company will pay
          Employee a lump sum payment (the "Termination Payment") in cash equal
          to the sum of the items in the following subsections (I) through (VI):


(I)  Employee's annual base compensation determined by reference to his base
salary in effect immediately prior to the Change In Control;

                                       3
<PAGE>

                   (II) the amount of Employee's base salary accrued but unpaid
              from the last payment date to the date of termination;

                  (III) expense reimbursement under Section 5 hereof for
              expenses incurred in the performance of his duties hereunder prior
              to the termination of his employment with the Company;

                   (IV) any other benefit accrued but unpaid as of the date of
              such termination; and

                    (V) the estimated cost to Employee of obtaining medical,
              dental, life and disability insurance coverage for a period of
              eighteen months after the expiration of his continuation (COBRA)
              rights; provided that such coverage will be substantially similar
              to the coverage provided to Employee by the Company immediately
              prior to the Change In Control; and provided further that this
              subsection 8(a)(i)(VI) will be applied without regard to, and the
              amount payable under this subsection 8(a)(i)(VI) is in addition
              to, any continuation (COBRA) rights or conversion rights under any
              plan provided by the Company, which rights are not affected by any
              provision hereof.

          (ii) Time for Payment; Interest. The Company will pay the Termination
     Payment to Employee concurrent with Employee's termination of employment.
     The Company's obligation to pay to Employee any amounts under this Section
     8, will bear interest at the maximum rate allowed by law until paid by the
     Company, and all accrued and unpaid interest will bear interest at the same
     rate, all of which interest will be compounded daily.

         (iii) Payment Authority. Any officer of the Company (other than
     Employee) is authorized to issue and execute a check, initiate a wire
     transfer or otherwise effect payment on behalf of the Company to satisfy
     the Company's obligations to pay all amounts due to Employee under this
     Section 8.

          (iv) Termination. The Company's obligation to pay the Termination
     Payment will not be affected by the manner in which Employee's employment
     with the Company is terminated. Without limiting the generality of the
     foregoing, the Company will be obligated to pay the Termination Payment
     regardless of whether Employee's termination of employment is voluntary,
     involuntary, for cause, without cause, in violation of any employment
     agreement or other agreement in effect at the time of the Change In
     Control, or due to Employee's retirement or disability. Employee's notice
     of his termination of employment in connection with a Change In Control may
     be made by any means.

                                       4
<PAGE>

          (b) Change In Control. A Change In Control will be deemed to have
     occurred for purposes hereof (i) when a change of stock ownership of the
     Company of a nature that would be required to be reported in response to
     Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of
     1934, as amended (the "Exchange Act"), and any successor Item of a similar
     nature has occurred; or (ii) upon the acquisition of beneficial ownership,
     directly or indirectly, by any person (as such term is used in Sections
     13(d) and 14(d)(2) of the Exchange Act) of securities of the Company
     representing 33% or more of the combined voting power of the Company's then
     outstanding securities; or (iii) a change during any period of two
     consecutive years of a majority of the members of the Board of Directors of
     the Company for any reason, unless the election, or the nomination for
     election by the Company's shareholders, of each director was approved by a
     vote of a majority of the directors then still in office who were directors
     at the beginning of the period; provided that a Change In Control will not
     be deemed to have occurred for purposes hereof with respect to any person
     meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
     promulgated under the Securities Exchange Act of 1934, as amended.

          (c) Arbitration. Any controversy or claim arising out of or relating
     to this Section 8, or the breach thereof, will be settled exclusively by
     arbitration in Dallas, Texas, in accordance with the Commercial Arbitration
     Rules of the American Arbitration Association then in effect. Judgment upon
     the award rendered by the arbitrator(s) may be entered in, and enforced by,
     any court having jurisdiction thereof.

          (d) No Right To Continued Employment. This Section 8 will not give
     Employee any right of continued employment or any right to compensation or
     benefits from the Company except the rights specifically stated herein.

     Section 9.  CONFIDENTIAL INFORMATION.  Employee recognizes and acknowledges
that certain assets of the Company and its affiliates, including without
limitation information regarding customers, pricing policies, methods of
operation, proprietary computer programs, sales, products, profits, costs,
markets, key personnel, formulae, product applications, technical processes, and
trade secrets (hereinafter called "Confidential Information") are valuable,
special and unique assets of the Company and its affiliates.  Employee will not,
during or after his term of employment, disclose any of the Confidential
Information to any person, firm, corporation, association, or any other entity
for any reason or purpose whatsoever, directly or indirectly, except as may be
required pursuant to his employment hereunder, unless and until such
Confidential Information becomes publicly available other than as a consequence
of the breach by Employee of his confidentiality obligations hereunder.  In the
event of the termination of his employment, whether voluntary or involuntary and
whether by the Company or Employee, Employee will deliver to the Company all
documents and data pertaining to the Confidential Information and will not take
with him any documents or data of any kind or any reproductions (in whole or in
part) of any items relating to the Confidential Information.

                                       5
<PAGE>

     Section 10.  NONCOMPETITION.  Until one year after termination of
Employee's employment hereunder for any reason, Employee will not (i) engage
directly or indirectly, alone or as a shareholder, partner, officer, director,
employee or consultant of any other business organization, in any business
activities which (A) relate to the acquisition and consolidation of medical
practices (the "Designated Industry") and (B) were either conducted by the
Company prior to Employee's termination or proposed to be conducted by the
Company at the time of such termination, (ii) divert to any competitor of the
Company in the Designated Industry any customer of Employee, or (iii) solicit or
encourage any officer, employee, or consultant of the Company to leave its
employ for employment by or with any competitor of the Company in the Designated
Industry.  The parties hereto acknowledge that Employee's noncompetition
obligations hereunder will not preclude Employee from (i) owning less than 5% of
the common stock of any publicly traded corporation conducting business
activities in the Designated Industry or (ii) serving as an officer or employee
of an entity engaged in the healthcare industry whose business operations are
not competitive with those of the Company.  Employee will continue to be bound
by the provisions of this Section 10 until their expiration and will not be
entitled to any compensation from the Company with respect thereto.  If at any
time the provisions of this Section 10 are determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 10 will be considered divisible and will become
and be immediately amended to only such area, duration and scope of activity as
will be determined to be reasonable and enforceable by the court or other body
having jurisdiction over the matter; and Employee agrees that this Section 10 as
so amended will be valid and binding as though any invalid or unenforceable
provision had not been included herein.

     Section 11.  GENERAL.

          (a) Notices. Except as provided in Section 8(a) hereof, all notices
     and other communications hereunder will be in writing or by written
     telecommunication, and will be deemed to have been duly given if delivered
     personally or if mailed by certified mail, return receipt requested or by
     written telecommunication, to the relevant address set forth below, or to
     such other address as the recipient of such notice or communication will
     have specified to the other party hereto in accordance with this Section
     11(a):

     If to the Company, to:                     with a copy to:

     Physicians Resource Group, Inc.            Jackson & Walker, L.L.P.
     Three Lincoln Centre, Suite 1540           901 Main Street, Suite 6000
     5430 LBJ Freeway                           Dallas, Texas  75202
     Dallas, Texas  75240                       Attn: James S. Ryan, III
     Attn:  Chief Executive Officer             Fax No.:  (214) 953-5822

                                       6
<PAGE>

     If to Employee, to:

     Daniel Chambers
     3110 Brock Grove
     Kingwood, Texas  77345


          (b) Withholding; No Offset. All payments required to be made by the
     Company under this Agreement to Employee will be subject to the withholding
     of such amounts, if any, relating to federal, state and local taxes as may
     be required by law. No payment under this Agreement will be subject to
     offset or reduction attributable to any amount Employee may owe to the
     Company or any other person.

          (c) Equitable Remedies. Each of the parties hereto acknowledges and
     agrees that upon any breach by Employee of his obligations under any of
     Sections 9 and 10 hereof, the Company will have no adequate remedy at law,
     and accordingly will be entitled to specific performance and other
     appropriate injunctive and equitable relief.

          (d) Severability. If any provision of this Agreement is held to be
     illegal, invalid or unenforceable, such provision will be fully severable
     and this Agreement will be construed and enforced as if such illegal,
     invalid or unenforceable provision never comprised a part hereof; and the
     remaining provisions hereof will remain in full force and effect and will
     not be affected by the illegal, invalid or unenforceable provision or by
     its severance herefrom. Furthermore, in lieu of such illegal, invalid or
     unenforceable provision, there will be added automatically as part of this
     Agreement a provision as similar in its terms to such illegal, invalid or
     unenforceable provision as may be possible and be legal, valid and
     enforceable.

          (e) Waivers. No delay or omission by either party hereto in exercising
     any right, power or privilege hereunder will impair such right, power or
     privilege, nor will any single or partial exercise of any such right, power
     or privilege preclude any further exercise thereof or the exercise of any
     other right, power or privilege.

          (f) Counterparts. This Agreement may be executed in multiple
     counterparts, each of which will be deemed an original, and all of which
     together will constitute one and the same instrument.

          (g) Captions. The captions in this Agreement are for convenience of
     reference only and will not limit or otherwise affect any of the terms or
     provisions hereof.

          (h) Reference to Agreement. Use of the words "herein," "hereof,"
     "hereto" and the like in this Agreement refer to this Agreement only as a
     whole and not to any particular subsection or provision of this Agreement,
     unless otherwise noted.

                                       7
<PAGE>

          (i) Binding Agreement. This Agreement will be binding upon and inure
     to the benefit of the parties and will be enforceable by the personal
     representatives and heirs of Employee and the successors of the Company. If
     Employee dies while any amounts would still be payable to him hereunder,
     such amounts will be paid to Employee's estate. This Agreement is not
     otherwise assignable by Employee.

          (j) Entire Agreement. This Agreement contains the entire understanding
     of the parties, supersedes all prior agreements and understandings relating
     to the subject matter hereof and may not be amended except by a written
     instrument hereafter signed by each of the parties hereto.

          (k) Governing Law. This Agreement and the performance hereof will be
     construed and governed in accordance with the laws of the State of Texas,
     without regard to its choice of law principles.

     EXECUTED as of the date and year first above written.


                                       PHYSICIANS RESOURCE GROUP, INC.


                                       By: ________________________________
                                           Emmett E. Moore
                                           President and Chief Executive Officer



                                       ____________________________________
                                       Daniel Chambers

                                       8