<PAGE>   1
                                                                   EXHIBIT 10.38

                              EMPLOYMENT AGREEMENT


  This Employment Agreement is entered into on November 10, 1997 by and between
United Dental Care, Inc., a Delaware corporation, (hereinafter referred to as
"UDC"), and John W. McCarty, (hereinafter referred to as "Employee"), with
reference to the following facts:

                                    RECITALS

        UDC desires to employ employee in the capacity and on the terms and
conditions hereinafter set forth and employee is willing to serve is such
capacity and on such terms and conditions.

        NOW, THEREFORE, it is hereby agreed to as follows:

        1. EMPLOYMENT. UDC hereby employs Employee as Senior Vice President and
Chief Financial Officer of UDC. References herein to UDC shall be deemed to
include references to any and all subsidiaries.

        2. DUTIES. During his employment, Employee shall devote substantially
all of his working time, energies and skills to the benefit of UDC's business.
Employee agrees to serve UDC diligently and to the best of his ability. In his
capacity as CFO, Employee shall report to the Chief Executive Officer of UDC
and shall have such duties, responsibilities, and authority commensurate with
his position as CFO and as typically identified with such position.

        3. COMPENSATION. Employee's compensation under this Agreement shall be
as follows:

        (a) BASE SALARY. UDC shall pay Employee a base salary ("Base Salary")
of $175,000 per year. In addition, the Board of Directors of UDC shall, in good
faith, consider granting increases in such salary based upon such factors as
Employee's performance and the growth and/or profitability of UDC, but it shall
have no obligation to grant any such increases in compensation. Such Base
Salary shall be payable at such times and in such installments as other UDC
executives are paid. All payments shall be subject to the deduction of payroll
taxes and similar assessments as required by law.

        (b) BONUS. In addition to the Base Salary, Employee shall be eligible
to receive bonus compensation in such amounts and at such times as the
Compensation Committee of UDC shall, from time to time, determine.

        4. EXPENSES AND BENEFITS. Employee is authorized to incur reasonable
expenses in connection with the business of UDC including expenses for
entertainment, travel and similar matters. UDC will reimburse Employee for such
expenses upon presentation by Employee of such accounts and records as UDC
shall from time to time require. UDC also agrees to provide Employee with the
following benefits:
<PAGE>   2
                                                                   EXHIBIT 10.38

        (a) INSURANCE. Major medical health insurance and disability insurance
as currently in place.

        (b) EMPLOYEE BENEFIT PLANS. Participation in any other employee benefit
plans now existing or hereafter adopted by UDC for its employees.

        (c) OTHER. Such items and benefits as UDC shall, from time to time,
consider necessary or appropriate to assist Employee in the performance of his
duties.

        (d) VACATIONS. Employee shall be entitled (in addition to the usual
public holidays) to a paid vacation for a period in each calendar year of three
weeks, to be taken at such times as may be approved by UDC.

        5. TERM. The term of this Agreement shall be from the date of this
Agreement to December 31, 1998; provided, however, that either party may
terminate this Agreement at any time upon at least 60 days prior written
notice. In the event of such termination by UDC, Employee shall be entitled to
severance pay based on his Base Salary at the time of termination, plus a bonus
(payable monthly on a pro rata basis) at a rate equal to one year of bonus
based on the current year expected level as provided in the letter agreement
dated October 22, 1997, plus a pro rata bonus for the current year beginning
January 1, 1998, up to the latter of the notice of termination or until
December 31, 1998, whichever is later. Such severance pay shall be payable in
monthly installments and UDC shall continue the benefits set forth is Sections
4(a) and (b) for the period during which such severance payments are to be
made. In addition, this Agreement shall terminate as provided for in Section 7
or upon the death of Employee.

        6. DISABILITY.

        (a) In the event that Employee becomes Permanently Disabled (as
hereinafter defined) during the term of this Agreement, Employee shall continue
in the employ of UDC but his compensation hereunder shall be reduced to
three-fourths of the Base Salary then in effect as set forth in Section 3(a)
hereof, commencing upon the determination of Employee's Permanent Disability
and continuing thereafter until the first to occur of (i) 36 months or (ii) the
death of Employee; and during such period of time, Employee shall not be
entitled to payment of expenses or benefits specified in Section 4 hereof
(except for reimbursement of expenses incurred by Employee prior to becoming
Permanently Disabled), except that UDC shall continue to provide Employee with
the insurance benefits specified in Section 4(a) hereof. The obligation of UDC
for continuation of three-fourths of Employee's Base Salary shall be net of
payments to Employee from the disability insurance referred to in Section 4(a)
hereof.

        (b) DEFINITION OF DISABILITY. For purposes of the Agreement, the terms
"Permanent Disability" or "Permanently Disabled" shall mean three months of
substantially continuous disability. Disability shall be deemed "substantially
continuous" if, as a practical matter, Employee, by reason of his mental or
physical health, is unable to sustain reasonably long periods of substantial
performance of his duties. Frequent long illnesses, though different from the
preceding illness and though separated by relatively short periods of
performance, shall be deemed to be "substantially continuous." Disability shall
be determined in good faith by the Board of Directors, whose decision shall be
final and binding upon Employee. Employee hereby consents to medical
examinations by such physicians and medical consultant as UDC shall, from time
to time, require.
<PAGE>   3
                                                                   EXHIBIT 10.38


        7. TERMINATION BY UDC. UDC shall have the right to terminate Employee's
employment as hereinafter provided.

        (a) TERMINATION BY UDC FOR CAUSE. UDC shall have the right to terminate
Employee's employment under this Agreement for Cause by an affirmative vote to
so terminate by a majority of all of the members of UDC's Board of Directors,
in which event, no compensation shall be paid or other benefits furnished to
Employee after termination for Cause. Termination for Cause shall be effective
immediately upon notice sent or given to Employee.

        (b) DEFINITION OF CAUSE. For purposes of this Agreement, the term
"Cause" shall mean and be strictly limited to: (i) conviction of a crime
constituting a felony under state or federal law; (ii) commission of any
material act of dishonesty against UDC; or (iii) willful and material breach of
this Agreement by Employee.

        8. CHANGE OF CONTROL. For purposes of Section 9 of this Agreement,
"Change of Control" shall mean: (i) a change of stock ownership of UDC 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; or (ii) 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 UDC representing 25% or more of the combined voting power of
UDC'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 UDC
for any reason, unless the election, or the nomination for election by UDC's
shareholders, of each director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of the
period. Notwithstanding the foregoing, no Change of Control shall be deemed to
have occurred in connection with any merger or similar transaction to which UDC
is a party if at least one-half of the members of the Board of Directors of the
ultimate parent corporation of the surviving corporate group consist of persons
who were member of UDC's Board or on the date hereof or persons elected or
nominated for election by such persons.

        (a) GOOD REASON. In the event of a Change of Control, Employee's
Employment may be terminated by the Employee for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:

        (i)the assignment to the Employee of any duties which reflect a
material diminution of the employee's position, authority, duties or
responsibilities. Whether or not a material diminution of the employee's
position, authority, duties or responsibilities has occurred will be determined
by the Executive Committee of UDC which is in place prior the "Change of
Control." Employee hereby agrees to accept and abide by that determination.
<PAGE>   4

        (ii)any failure by UDC to comply with any of the provisions of Section
3 of this Agreement, other than an isolated insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by UDC promptly after
receipt of notice thereof given by the Employee.

        (b) UDC will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of UDC to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that UDC would be required
to perform if no such succession had taken place and honor existing option
agreements.

        9. STOCK OPTIONS. In the event that UDC elects to terminate this
Agreement pursuant to Section 5 or in the event of a Change of Control of UDC
the Employee's employment is terminated by the Employee for Good Reason (or in
the event UDC breaches this Agreement by termination of Employee without the
notice required under Section 5 or without Cause under Section 7), then UDC
shall amend at least one half of all UDC stock options held by him and all
restricted stock awards made to him (whether issued subject to forfeiture or to
be issued when and if they become vested) so as to (a) cause to vest,
immediately prior to the date of such Change in Control or termination of
employment, all such then unvested stock options and restricted stock awards,
and (b) provide Employee 90 days to exercise such options (or such greater
period as may have been provided in the terms of such options). The
Compensation Committee of UDC, in place prior to the "Change in Control," will
have the ability to cause more than one-half of these options to vest. Such
determination will be made at the sole discretion of the Compensation
Committee. In addition, UDC will, consistent with all applicable laws and
regulations, use its reasonable efforts to assist Employee in securing
independent third party financing of the funds required by employee to exercise
all vested but unexercised stock options held by him. If such financing is not
so obtained by Employee, then UDC shall loan to Employee the funds required by
Employee to exercise such options, which loan shall be repayable one year from
the date made, will be secured by UDC's common stock purchased upon exercise of
such options and will bear interest at the prime rate (floating) of Bank One -
Texas, N.A. To the extent that UDC refuses or is unable to comply with the
provisions of Section 9(a) hereof, the time period contemplated in Section 9(b)
shall commence on the date UDC complies with the provision of said Section
9(a).

        10. CERTAIN REDUCTION OF PAYMENTS BY UDC.

        (a) Notwithstanding anything to the contrary in Sections 8 and 9 of
this Agreement, in no event shall a Stock Option become immediately exercisable
or the restrictions relating to Restricted Stock terminate upon the Employee's
Termination if such acceleration would (i) cause any payment made to the
Employee, whether pursuant to the terms of this Agreement or otherwise (a
"Payment") to constitute an "Excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) disqualify the transaction constituting the Change of Control from being
accounted for as a "pooling of interests" within the meaning of APB No. 16,
which would qualify
<PAGE>   5
                                                                   EXHIBIT 10.38

        for such accounting treatment in the absence of such acceleration (the
"Disqualification"). In the event acceleration of any Option Rights would cause
any Payment to constitute an excess parachute payment, or would cause a
Disqualification, the Compensation Committee of the UDC Board of Directors
shall select the Stock Options which shall remain unexercisable so that no
Payment shall constitute an excess parachute payment and/or no Disqualification
shall occur. Any Stock Options which remain unexercisable upon the Employee's
Termination by reason of this Section 10(a) shall become exercisable as set
forth in Section 10(b) below.

        (b) In the event that any Stock Option which is outstanding on the
Employee's Termination has not become exercisable because of the application of
this Section 10, such Stock Option will become exercisable in such manner and
at such times as the Stock Option would have become exercisable if the Employee
had not terminated employment, and the portion of any such Stock Option which
becomes exercisable pursuant to this Section 10(b) shall remain exercisable
until the earlier of the date which is 90 days following the date on which the
Stock Option first becomes exercisable or the original expiration date of the
Stock Option.

        11. NON-COMPETITION AND CONFIDENTIALITY.

        (a) NON-COMPETITION. Employee recognizes and understands that in
performing the responsibilities of his employment, he will occupy a position of
fiduciary trust and confidence, pursuant to which he will develop and acquire
experience and knowledge with respect to UDC's business. It is the expressed
intent and agreement of Employee and UDC that such knowledge and experience
shall be used exclusively in the furtherance of the interests of UDC and not in
any manner which would be detrimental to UDC's interests. Employee further
understands and agrees that UDC conducts its business within a specialized
market segment throughout the United States, and that it would be detrimental
to the interests of UDC if Employee used the knowledge and experience which he
currently possesses or which he acquires pursuant to his employment hereunder
for the purpose of directly or indirectly competing with UDC, or for the
purpose of aiding other persons or entities in so competing with UDC, anywhere
in the United States. Employee therefore agrees that so long as he is employed
by UDC and for a period of the greater of (i) one year from the date of
notification by employee of termination (ii) the time Employee is receiving a
salary or severance payments or (iii) the time granted under Section 9 to
Employee to exercise stock options if options are exercised or (iv) such time
as UDC is loaning money or has a loan outstanding to Employee, unless Employee
first secures the written consent of UDC, Employee will not directly or
indirectly invest, engage or participate in or become employed by any entity in
direct or indirect competition with UDC's business (which shall include the
ownership and/or operation of managed dental plans) anywhere in the United
States, or contract to do so. These non-competition provisions are not to be
construed to prohibit Employee from being employed in the health care industry,
but rather to permit him to be so employed so long as such employment does not
involve Employee's direct or indirect participation in a business which is the
same or similar to UDC's business (as defined above). In the event that the
provisions of this Section 11 should ever be deemed to exceed the time or
geographic limitations permitted by applicable laws, then such provisions shall
be reformed to the maximum time or geographic limitations permitted by
applicable laws.
<PAGE>   6
                                                                   EXHIBIT 10.38

        (b) REMEDIES. Employee acknowledges that the restrictions contained in
Section 10(a), in view of the nature of the business in which UDC is engaged,
are reasonable and necessary to protect the legitimate interests of UDC.
Employee understands that the remedies at law for his violations of any of the
covenants or provisions of Section 10(a) will be inadequate, that such
violation will cause irreparable injury within a short period of time, and that
UDC shall be entitled to preliminary injunctive relief against such violation.
Such injunctive relief shall be in addition to, and in no way in limitation of,
any and all other remedies UDC shall have in law and equity for the enforcement
of those covenants and provisions.

        12. General Provisions.

        (a) NOTICES. Any notice to be given hereunder by either party to the
other may be effected by personal delivery, in writing or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses set forth below, but each
party may change his or its address by written notice in accordance with this
Section 12(a). Notice deleted personally shall be deemed communicated as of the
actual receipt; mailed notices shall be deemed communicated as of three days
after mailing.

  If to Employee:   John W. McCarty
                    6215 Twin Oaks
                    Dallas, Texas 75240

  If to UDC:        13601 Preston Road, Suite 500 East
                    Dallas, Texas 75240
        Attention:  William H. Wilcox, Chief Executive Officer

        (b) PARTIAL INVALIDITY. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall, nevertheless, continue in full force and without
being impaired or invalidated in any way.

        (c) GOVERNING AGREEMENT. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.

        (d) ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which he or it may be
entitled.

        (e) ASSIGNMENT. This Agreement shall inure to the benefit of and bind
the parties hereto and their respective legal representatives, successors and
assigns.

        (f) ENTIRE AGREEMENT. This Agreement supersedes any and all other
Agreements, either oral or in writing, between the parties hereto with respect
to employment of Employee by UDC and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to
this Agreement acknowledges that no representations, inducements or agreements,
oral or otherwise, have been embodied herein, and no other agreement, statement
or promise not contained in this Agreement shall be valid or binding. Any
modification of this Agreement will be effective only if it is in writing
signed by the party to be charged.
<PAGE>   7
                                                                   EXHIBIT 10.38


        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                       UNITED DENTAL CARE, INC.


                                       By:  William H. Wilcox 
                                          --------------------------- 
                                            William H. Wilcox,
                                            Chief Executive Officer


                                   EMPLOYEE:


                                            John W. McCarty 
                                           --------------------------- 
                                            John W. McCarty