Ward A. Phelan
February 27, 1998
Page 1


[ESI letterhead]

                                February 27, 1998

Ward A. Phelan, Senior Vice-President
EMPLOYEE SOLUTIONS, INC.
6225 North 24th Street
Phoenix, AZ 85016

Dear Ward:

         I would  like to thank  you again  personally  for all you have done to
build the Risk  Services  staff and bring our program  forward into a guaranteed
cost environment.

         With all of the changes underway, this letter will serve to confirm our
recent  conversation in which we agreed that a change in your current status was
in the best  interests  of the Company  and you  personally.  By signing  below,
please indicate your agreement with the following:

         1. You will  remain as an employee of the Company and will be paid your
current base salary and car  allowance  through May 31, 2000, at which time your
employment will terminate.  While you will remain a full-time  employee  through
May 31, 2000, you will not be required to report on a daily basis,  nor will the
Company  require your physical  presence at its offices,  except as specified in
paragraph five below.

         2.  During  such  period,  the  Company  will  continue  your  employee
insurance benefits consistent with current arrangements,  will make available to
you future  insurance  programs  subject  to the terms  offered to all full time
employees,  and will continue to pay your ordinary and necessary business mobile
telephone  expenses in accordance with Company policy. The Company will bill you
for non-business  related calls or service,  and you will promptly remit payment
or proof of business relationship. You acknowledge that, in light of the working
relationship  described in paragraph one above, you will not participate in paid
time-off  arrangements  which  might  otherwise  be  applicable  (such  as  paid
vacation,  sick pay,  bereavement  pay, jury duty pay,  holiday pay or any other
similar arrangement).

         3. You are subject to a  noncompetition  agreement  for a period ending
May 31, 2002 on the terms set forth in  paragraph  15 of your former  Employment
Agreement (the "prior agreement") except that the territory shall be expanded to
include the entire  United  States.  You also are  subject to a  confidentiality
agreement on the terms set forth in paragraph 6 of the prior agreement and shall
not discuss any Company matters with anyone, including employees of the Company,
except to the extent  necessary to perform specific duties required from time to
time under  paragraph  five hereof.  Provided  that you comply at all times with
your confidentiality agreement, we agree that, to the
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Ward A. Phelan
February 27, 1998
Page 2


extent  doing so does not  interfere  with the services to be provided by you to
the Company,  you may provide consulting  services to organizations which do not
compete or intend to compete,  directly or indirectly, in any business conducted
by the Company or its subsidiaries or affiliates.

         4. You hereby resign as an executive  officer of the Company and any of
its  subsidiaries,  effective  March 15,  1998,  and  thereafter  will no longer
function as head of the Risk Services  department.  At such time,  you will also
relocate  from your  current  office  space.  After this,  while you will remain
subject to insider  trading laws in the same fashion as any other employee while
you are in possession of material  nonpublic  information,  your transactions in
Company securities  generally will no longer be reported publicly.  At such time
as you are no longer in possession of such information,  you will not be subject
to the Company's pre-clearance procedures with respect to such transactions.

         5.  You  will  provide   those   services  in  the  areas  of  workers'
compensation  and risk  management  as are  requested  from  time to time by the
Company, in those fields as specified by the prior agreement and with respect to
related  matters  reasonably  requested  by the  Company.  You will also provide
assistance  from time to time  with  respect  to  current  or future  litigation
involving the Company. The Company will provide a work space as needed when such
services  are  requested  and  will pay or  reimburse  your  qualified  expenses
incurred in compliance with Company policy in effect from time to time. You will
report directly to the CEO/President while an employee of the Company, though it
is understood  that, upon request,  you will work closely in  coordination  with
other Company employees in connection with providing such services. Requests for
service will be made in writing  (including fax, email or similar  transmission)
where  practicable in the Company's  discretion.  It is understood that you will
have 24 hours to report in person to handle assignments, provided that you agree
to keep the Company  reasonably  advised of your whereabouts and to be available
for  telephone  consultation  as promptly as  reasonably  practicable  under the
circumstances.

         6. Your  current  options  will  remain  outstanding  pursuant to their
terms.

         7. Your employment will be subject to termination only on the terms set
forth in paragraph 5 of the prior agreement.

         8. While it is not anticipated  that any general  announcement  will be
issued  concerning  the change in your duties,  the Company  agrees that it will
give you the opportunity to
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Ward A. Phelan
February 27, 1998
Page 3

review and approve  disclosures  relating  thereto,  subject to its  obligations
under the federal  securities laws. The Company has not intention of disparaging
and will not disparage you or your  performance in discussions  with  outsiders.
Similarly, you will not disparage the Company or any of its directors, officers,
agents or employees.

         9. The Company  will lend you $75,000 on March 15,  1998,  which amount
shall bear  interest at the  applicable  federal  rate. If not repaid by May 31,
1999, you agree that the Company thereafter may obtain payment from time to time
by deducting  principal and interest from amounts  otherwise  payable  hereunder
and/or shares of Company common stock otherwise  issuable upon exercise of stock
options held by you. You agree that in any event you are personally  responsible
for payment of any unpaid  principal and interest no later than May 31, 2000. If
requested by the Company,  you will sign a non-negotiable  note evidencing these
terms prior to receipt of funds.

         10. This letter  agreement is our entire  agreement and  supersedes all
prior  agreements.  This agreement may not be amended except in a writing signed
by both of us. It shall be  governed by Arizona  law,  and venue for any dispute
shall lie exclusively in Maricopa County Superior Court.

         Thank you again.


                                             Sincerely,

                                             /s/ Marvin D. Brody

MDB:db                                       Marvin D. Brody
                                             CEO & Chairman of the Board


         The terms  outlined in the foregoing  letter are agreed to and accepted
by me this 27th day of February, 1998.

         /s/ Ward A. Phelan

         Ward A. Phelan