<PAGE>

                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT


     This Agreement among William G. McCabe (the "Executive") and CBT Group PLC,
a public company limited by shares formed under the laws of the Republic of
Ireland ("CBT Group") and its wholly-owned subsidiary, CBT Systems USA, Ltd., a
Delaware corporation ("CBT USA"), is entered into as of June 18, 1999 (the
"Effective Date").  For purposes of this Agreement, the term "Company" shall be
used to refer to both CBT Group and CBT USA.

     WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept employment with the Company on the terms and conditions set
forth below;

     NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:

     1.    Employment and Duties.  The Executive shall be employed as Chairman
           ----------------------
of the Board  of CBT Group effective as of December 10, 1998 reporting to the
Board of Directors of CBT Group (the "Board"), and assuming and discharging such
responsibilities as are mutually agreed upon by the Executive and the Board
commensurate with such office and position.  The Executive shall perform
faithfully the executive duties assigned to him to the best of his ability.

     2.    Base Salary.  In consideration of the Executive's services, the
           ------------
Executive shall be paid a minimum base salary at the rate of $25,000 per year
during the period of employment (the "Base Salary"), to be paid in installments
in accordance with the Company's standard payroll practices.  This Base Salary
shall be reviewed for increases at least annually by the Board on the same basis
as the Board shall review the compensation of other executive officers of the
Company.

     3.    At-Will Employment.  The Company and the Executive acknowledge that
           -------------------
the Executive's employment is and shall continue to be at-will, as defined under
applicable law.  If the Executive's employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
policies or other written agreements with the Executive at the time of
termination.

     4.    Benefits; Expenses.  The Executive, together with his spouse and
           -------------------
dependent children, shall be permitted, to the extent eligible, to participate
at the Company's expense in any group medical, dental, life insurance and
disability insurance plans, or similar benefit plans of the Company that are
available to other executive officers in each case pursuant to the terms and
conditions of each such plan or program.  The Executive shall also be entitled
to four (4) weeks' annual vacation.  Without limiting the generality of the
foregoing, the Company shall reimburse the Executive for all reasonable business
and travel expenses actually incurred or paid by the Executive in the
performance of services on behalf of the Company, in accordance with the
Company's expense reimbursement policy as in effect from time to time.
<PAGE>

     5.   Voluntary Termination and Termination for Cause.    In the event that
          ------------------------------------------------
the Executive terminates his employment with the Company voluntarily or the
Company terminates the Executive's employment for Cause, Sections 6(a), 6(b) and
6(c) below shall apply.  For purposes of this Agreement, termination for "Cause"
shall mean (i) any act of personal dishonesty taken by the Executive in
connection with his responsibilities as an employee which is intended to cause a
material personal financial benefit for the Executive and is intended to cause a
material financial detriment to the Company, (ii) the Executive's conviction of
or plea of nolo contendere to a felony, (iii) a willful act by the Executive
which constitutes misconduct and is injurious to the Company, and (iv) continued
willful violations by the Executive of the Executive's obligations to the
Company.

          (a) Covenant Not to Solicit.  Beginning with the effective date of the
              ------------------------
Executive's voluntary termination or termination for Cause and until one (1)
year thereafter or until October 31, 2000, whichever is later (the "Non-Compete
Period"), the Executive agrees that he will not:

              (i)  solicit, encourage, or take any other action which is
intended to induce any other employee of the Company to terminate his employment
with the Company, or

              (ii) interfere in any manner with the contractual or employment
relationship between the Company and any such employee of the Company.

     The foregoing shall not prohibit the Executive or any entity with which the
Executive may be affiliated from hiring a former employee of the Company,
provided that such hiring results from such employee's affirmative response to a
general recruitment effort carried out through a public solicitation or a
general solicitation.

           (b) Covenant Not to Compete. During the Non-Compete Period, the
               -----------------------
Executive agrees that he will not, directly or indirectly, own, manage, operate,
join, control, advise or participate in, as a shareholder (other than as a
shareholders with less than one percent (1%) of the outstanding stock of a
company), officer, manager, executive, partner, consultant or technical or
business advisor (or any foreign equivalents of the foregoing) any company that
derives more than ten percent (10%) of its revenues from a Restricted Business,
or any company or entity controlling, controlled by or under common control with
any company that derives more than ten percent (10%) of its revenues from a
Restricted Business (any such company, a "Restricted Company"). For the purposes
of this Agreement, the term "Restricted Business" shall mean the business of
developing or selling computer-based training for information technology
professionals, on-line business degrees, or any other interactive education
business in which the Company is then involved.

     The foregoing will not in any way affect the Executive's right to take any
of the foregoing positions if he is involved only in parts of a company that do
not derive any revenues from the Restricted Business.

              (i) In the event that the Executive intends to associate with any
Restricted Company during the Non-Compete Period, the Executive must provide
information in writing to the

                                      -2-
<PAGE>

Board of the Company relating to the business engaged in or proposed to be
engaged in by such Restricted Company. All such current associations of the
Executive are set out in Exhibit A hereto. In the event that the Board
                         ---------
authorizes the Executive to engage in such activity in writing, any activity by
the Executive described in the written information furnished to the Board and so
authorized shall be conclusively deemed not to be a violation of Section 6(a)
and (b) hereof.

              (ii) The Executive acknowledges that, pursuant to an Amended and
Restated Share Purchase Agreement between the Company, Knowledge Well Limited
and Knowledge Well Group Limited (collectively "Knowledge Well") and the
shareholders of Knowledge Well, he is transferring all Ordinary and Preferred
Shares of Knowledge Well owned by him and that the Company will be irreparably
injured if the provisions of this Section 6 are not specifically enforced. If
the Executive commits or, in the reasonable belief of the Company, threatens to
commit a breach of any of the provisions of this Section 6, the Company and each
of its subsidiaries and affiliates shall have the right and remedy, in addition
to any other remedy that may be available at law or in equity, to have the
provisions of this Section 6 specifically enforced by any court having equity
jurisdiction together with an accounting for any benefit or gain by the
Executive in connection with any such breach, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable injury to the
Company and its subsidiaries and that money damages will not provide an adequate
remedy therefor. Such injunction shall be available without the posting of any
bond or other security, and the Executive hereby consents to the issuance of
such injunction.

           (c) The Executive shall not receive any compensation or benefits
under this Agreement on account of his voluntary termination or termination for
Cause. The Executive's rights under the Company's benefit plans upon such a
termination shall be determined under the provisions of those plans.

     6.    Termination without Cause and Involuntary Termination.  If the
           ------------------------------------------------------
Executive's employment with the Company is Involuntarily Terminated by the
Company other than for Cause (an "Involuntary Termination Event"), Sections 7(a)
and 7(b) below shall apply.  For purposes of this Agreement, the term
"Involuntary Termination" shall mean (i) without the Executive's express written
consent, the assignment to the Executive of any duties, or the removal from or
reduction or limitation of the Executive's duties or responsibilities, which in
either case is a significant change in the Executive's position, title,
organization level, duties, responsibilities, compensation and status with the
Company; (ii) without the Executive's express written consent, a substantial
reduction of the facilities and perquisites (including office space and
location) available to the Executive immediately prior to such reduction; (iii)
without the Executive's express written consent, a reduction by the Company in
the base salary of the Executive as in effect immediately prior to such
reduction; (iv) without the Executive's express written consent, a material
reduction by the Company in the kind or level of employee benefits to which the
Executive is entitled immediately prior to such reduction with the result that
the Executive's overall benefits package is significantly reduced; (v) without
the Executive's express written consent, the relocation of the Executive to a
facility or a location more than twenty (20) miles from the Executive's then-
present work location; (vi) any purported termination of the Executive by the
Company other than for Cause

                                      -3-
<PAGE>

or by reason of the Executive's death or Disability; (vii) the failure of the
Company to obtain the assumption of this Agreement by any successor as required
by Section 12 below; or (viii) any material breach by the Company of any term of
this Agreement.

           (a)  Severance. The Company shall, in addition to paying the
                ---------
Executive all amounts accrued by the Executive on or prior to the date of the
Involuntary Termination Event, make a lump sum payment to him equal to his then
base salary plus the then maximum performance bonus for a period of one (1)
year, or for the period from such termination to October 31, 2000, which ever is
longer.

           (b) Stock Options. Notwithstanding that above Sections 6(a) and 6(b)
               -------------
will otherwise not apply to the Executive as a result of the Involuntary
Termination Event, the Executive may elect to be bound by above Sections 6(a)
and 6(b) in exchange for continued vesting of the stock options granted to him
by the Company for the period during which such Sections 6(a) and (b) apply;
provided, however, that the Executive has to notify the Company of said election
within thirty (30) days of such termination. Otherwise, the Executive's stock
options will discontinue to vest immediately upon termination of employment.

     7.    Death.  In the event of the Executive's death, except for obligations
           ------
accrued at such time, the Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement.  The Executive's rights under the
Company's benefit plans in the event of the Executive's death shall be
determined under the provisions of those plans.

     8.    Disability. The Company may terminate the Executive's employment for
           -----------
Disability by giving the Executive thirty (30) days' advance notice in writing.
In the event that the Executive resumes the performance of substantially all of
his duties hereunder before the termination of his employment under this Section
9 becomes effective, the notice of termination shall automatically be deemed to
have been revoked.  Except for such obligations that have accrued prior to the
Executive's Disability, no compensation or benefits will be paid or provided to
the Executive under this Agreement on account of termination for Disability.
The Executive's rights under the Company's benefit plans shall be determined
under the provisions of those plans.  For all purposes under this Agreement,
"Disability" shall mean that the Executive, at the time notice is given, has
been unable to substantially perform his duties under this Agreement for a
period of not less than six (6) consecutive months as the result of his
incapacity due to physical or mental illness.

     9.    Tax Provisions.  In the event that the benefits provided for in the
           ---------------
Agreement, when aggregated with any other payments or benefits received by the
Executive, would (i) constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) would be subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), then the Executive's benefits hereunder shall be either

           (a)  delivered in full, or

                                      -4-
<PAGE>

           (b)  delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax, whichever of the
foregoing amounts, taking into account the applicable federal, state and local
income taxes and the Excise Tax, results in the receipt by the Executive on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under Section 4999 of the Code.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this paragraph shall be made in writing by the
Company's independent public accountants (the "Accountants") whose determination
shall be conclusive and binding upon the Executive and the Company for all
purposes. For purposes of making the calculations required by this paragraph,
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this paragraph. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph.

     10.    Proprietary Information Agreement.  In connection with commencement
            ---------------------------------
of the Executive's employment with the Company, the Executive will sign the
Company's standard executive proprietary information agreement, provided that
its provisions, if any, concerning non-solicitation and non-competition shall be
deleted in favor of the provisions herein.

     11.    Successors.  The Company shall require any successor or assignee, in
            -----------
connection with any sale, transfer or other disposition of all or substantially
all of the assets or business of CBT Group, whether by purchase, merger,
consolidation or otherwise, expressly to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession or
assignment had taken place.  In such event, the term CBT Group as used in this
Agreement, shall mean CBT Group as defined above and any successor or assignee
to the business and assets which by reason hereof becomes bound by the terms and
provisions of this Agreement.

     12.    Confidentiality.  Except as required by applicable laws, neither
            ----------------
party shall disclose the contents of this Agreement without first obtaining the
prior written consent of the other party, provided, however, that (i) the
Executive may disclose this Agreement to his attorney, financial planner and tax
advisor if such persons agree to keep the terms hereof confidential and (ii) the
Company may disclose this Agreement if its counsel advises that it is required
to do so under applicable law.

     13.    Arbitration.  Any claim, dispute or controversy arising out of this
            ------------
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in San Francisco County,
California; provided, however, that this arbitration provision shall not
preclude the Company from seeking injunctive relief from any court having
jurisdiction with respect to any

                                      -5-
<PAGE>

disputes or claims relating to or arising out of the misuse or misappropriation
of the Company's trade secrets or confidential and proprietary information. All
costs and expenses of arbitration or litigation, including but not limited to
attorneys fees and other costs reasonably incurred by the Executive, shall be
paid by the party who shall not have prevailed in the arbitration all as
conclusively determined by the arbitrators. Judgment may be entered on the award
of the arbitration in any court having jurisdiction.

     14.    Governing Law.  This Agreement shall be governed by and construed in
            --------------
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such state.

     15.    Integration.  This Agreement, any written agreements or other
            ------------
documents evidencing matters referred to herein and any written Company existing
plans that are referenced herein represent the entire agreement and
understanding between the parties as to the subject matter hereof and thereof
and supersede all prior or contemporaneous agreements as to the subject matter
hereof and thereof, whether written or oral.  No waiver, alteration, or
modification, if any, of the provisions of this Agreement shall be binding
unless in writing and signed by duly authorized representatives of the parties
hereto.

     16.    Voluntary Execution; Conflict Waiver.  The Executive has been
            -------------------------------------
advised to obtain independent legal counsel regarding this Agreement.  The
Executive is signing this Agreement knowingly and voluntarily.  The Company and
the Executive acknowledge that Wilson Sonsini Goodrich & Rosati, Professional
Corporation ("WSGR") has acted as counsel to the Company in negotiating this
Agreement and will continue to serve as the Company's general counsel in the
future, and each acknowledges that each has received full disclosure of any
potential conflict of interest which may result from such representation, and
knowingly and voluntarily waive any such conflict of interest.

     17.    Notices.  Notices and all other communications contemplated by this
            --------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid.  In the case of the Executive, mailed
notices shall be addressed to him at the home address that he most recently
communicated to the Company in writing.  In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.

     18.    No Mitigation.  In the event the Executive's employment with the
            --------------
Company terminates, the Executive shall not be required to mitigate damages or
the amount of any payment provided under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided under this
Agreement be reduced by any compensation earned by the Executive as a result of
employment by another employer or by retirement benefits after such termination,
or otherwise.

                                      -6-
<PAGE>

     19.    Waiver.  If either party should waive any breach of any provisions
            -------
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.

     20.    Counterparts.  This Agreement may be executed in counterparts, which
            -------------
together will constitute one instrument.

                  [Remainder of page intentionally left blank]

                                      -7-
<PAGE>

EXECUTIVE                    CBT GROUP PLC



/s/ William G. McCabe        By:  /s/ Gregory M. Priest
---------------------           ------------------------
William G. McCabe            Name:   Gregory M. Priest
                             Title:  President and Chief Executive Officer


                             CBT SYSTEMS USA, LTD.



                             By:  /s/ Gregory M. Priest
                                ------------------------
                             Name:   Gregory M. Priest
                             Title:  President and Chief Executive Officer




August 25, 1999
---------------
Date Signed

                                      -8-
<PAGE>

                                   EXHIBIT A
                                   ---------

                              Current Associations
                              --------------------

                                      -9-