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                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT


          Agreement made as of the 13th day of August, 1998 (the "Effective
Date"), by and between Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), and John Giordano (the "Employee").

          The Company wishes to employ the Employee, and the Employee wishes to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:

I.   Titles and Reporting Responsibilities
     -------------------------------------

          The Employee's title will be Vice President, Finance and Chief
Financial Officer or such other title as may be mutually agreed upon between
Employee and the Company. The Employee will report to the President and CEO .

II.  Term of Employment
     ------------------

          The Company hereby agrees to employ the Employee and the Employee
hereby accepts employment with the Company for a period (the "Employment
Period") commencing on the September 14, 1998 and ending May 31, 2001 unless
earlier terminated pursuant to the provisions of Section VII below. This
Agreement shall remain in full force and effect until expiration hereof unless
and until earlier terminated in accordance with Section VII of this Agreement.

III. Responsibilities of the Employee
     --------------------------------

          The Employee agrees to undertake the duties and responsibilities
inherent in the position described in Section I above and such other duties and
responsibilities as the Company or its designee shall from time to time
reasonably assign. The Employee agrees to devote his entire business time,
attention and energies to the business and interests of the Company during the
term of this Agreement. The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.

IV.  Expense Reimbursement
     ---------------------

          The Company will reimburse the Employee for all reasonable documented
travel and other business expenses incurred in furthering the business of the
Company and in accordance with the Company's then current travel and business
expense policy. Expenditures of an extraordinary nature shall require prior
written approval of the Company.

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V. Prohibitions
   ------------

          During the term of this Agreement, the Employee shall not:
 
          (a) be employed by or otherwise represent any other company, product,
          service or enterprise, without the prior written approval of the
          Company; or

          (b) make any representation, warranty, guarantee, or statement, orally
          or in writing, which would contravene any Company policy or compromise
          the Company's interests.

VI.  Compensation, Initial Stock Option Grant and Relocation
     -------------------------------------------------------

          (a) The Employee shall be paid a base salary (the "Base Salary") and,
          when appropriate, bonuses (Bonus Compensation") as described in this
          Section VI. The Employee's initial bi-weekly Base Salary shall be
          $7,500 (Initial Base Salary), which is the equivalent of $195,000 per
          year. Provided neither party has exercised the right to terminate this
          Agreement under Section VII, performance and compensation reviews will
          be conducted annually beginning January 1, 1999.

          (b) Bonus Compensation will be paid to the Employee provided the
          Employee successfully meets the bonus criteria as approved by the
          Board of Directors of the Company, by a Committee of the Board of
          Directors of the Company established for the purpose of determining
          bonus compensation or by a designee of the Board of Directors or such
          Committee who has been granted the authority to determine bonuses.
          Employee's bonus rate shall be 50% (Initial Bonus Rate) of base
          salary. The Employee's bonus criteria will be consistent with the
          criteria set for other senior executives of the Company taking into
          account his duties and responsibilities. Notwithstanding the above
          provisions, the Employee shall receive a minimum bonus of $25,000
          provided he is employed through December 31, 1998 payable when bonuses
          are payable to senior executives.

          (c) Except as otherwise provided, the Employee shall be entitled to
          participate in any and all benefit programs that the Company
          establishes and makes generally available to its employees for which
          he may be eligible under plan documents and applicable laws. In any
          case where contributions or benefits related to participation in a
          plan vary on the basis of compensation, "compensation" shall mean
          Employee's Base Salary only and shall not include expense
          reimbursements, advances, Bonus Compensation or any other compensation
          which may be paid by the Company. The Employee shall be entitled to
          four weeks vacation to be taken at such times as may be approved by
          the President and CEO.

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     (d) Any future revisions to Base Salary or Bonus Compensation may be
     implemented by the Board of Directors of the Company, by a Committee of the
     Board of Directors of the Company established for the purpose of
     determining bonus compensation or by a designee of the Board of Directors
     or such Committee who has been granted the authority to determine bonuses
     provided however that no reduction may be made to either the Initial Base
     Salary or the Initial Bonus Rate.

     (e) The Employee's initial stock option grant under the Company's 1997
     Stock Incentive Plan shall be 120,000 shares vesting in increments of 25%
     per year or an exercise price set at the fair market value of the Company's
     common stock on the date of grant. The grant date shall be on Employee'
     commencement of employment with the Company. All stock option grants must
     be approved by the Company's Board of Directors.

If during the first year of his employment, the Employee desires to move his
residence closer to the Billerica area, the Company will pay up to $15,000 of
documented relocation expenses (including real estate commissions but without
benefit of tax gross up); provided however that any such amount will be
subtracted from any 1999 Bonus Compensation earned that exceeds $80,000.

VII. Termination
     -----------

     The employment of the Employee by the Company pursuant to this Agreement
shall terminate:

     (a) By the Employee, without cause, by giving 30 days' prior written notice
     of termination to the Company or within such shorter period as is
     established by mutual agreement of the parties or upon Employee's
     commencement of employment or consulting with a third party, or by the
     Company, without cause, upon at least 52 weeks prior written notice (the
     "Notice Period") of termination to the Employee.

     (b) By either party, if the other party breaches any of its obligations
     under this Agreement and fails to remedy such breach within 30 days after
     written notice of such breach is provided to such other party. Failure of
     the Employee to adequately perform the duties and responsibilities
     specified in Section III hereof shall be considered a breach of this
     Agreement provided however that the remedy period for such breach shall be
     120 days.

     (c) By the Company, effective immediately and without notice, for cause.
     For purposes of this Section VII (c), "cause" for termination shall be
     deemed to exist upon (a)dishonesty, gross negligence or misconduct, (b) the
     conviction of the Employee of, or the entry of a pleading of guilty or nolo
     contendere by the Employee to, any crime involving moral turpitude or any
     felony.

     (d) Upon the death or disability of the Employee. As used in this
     Agreement, the term "disability" shall mean the inability of the Employee,
     due to a physical or mental 

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       disability, to perform the essential functions of his/her job with or
       without a reasonable accommodation by the Company.

VIII.  Rights Following Termination
       ----------------------------

       (a) Following termination of this Agreement, pursuant to Section VII(b),
       VII(c), VII(d), or at the option of the Employee pursuant to Section
       VII(a), or upon expiration of this Agreement, the Company shall have no
       further responsibility to Employee except to pay Base Salary up to and
       including the last day of employment.

       (b) Following termination of this Agreement at the option of the Company
       pursuant to Section VII (a), the Company shall continue to pay to the
       Employee the Base Salary in accordance with its then current payroll
       policies until the earlier of either expiration of the Notice Period or
       the date Employee commences employment or consulting with a third party
       during the Notice Period; provided however that if the compensation
       earned by the employee under any such arrangement is less than the Base
       Salary at the time of termination, Employee shall continue to be paid the
       difference between such compensation and the Base Salary for the
       remainder of the Notice Period. Employee shall perform such services for
       the Company as mutually agreed upon between Company and Employee as to
       scope, timing and location during such Notice Period. The Employee shall
       not be eligible to receive the payments during the Notice Period unless
       and until the Employee signs a release in the form attached hereto as
       Exhibit A.

       (c) In the event of termination or expiration of this Agreement, Employee
       shall, at the instruction of the Company, promptly return to the Company
       or its designee all files, letters, memoranda, reports, records, data,
       sketches, drawings, laboratory notebooks, program listings, or other
       written, photographic, or other tangible material supplied by the Company
       to the Employee or created or maintained for the Company by the Employee.

       (d) Except as set forth above, neither party shall be entitled to any
       compensation or claim for goodwill or other loss, suffered by reason or
       termination of this Agreement.

       (e) The rights and obligations of the parties to this Agreement set forth
       in Section VIII and Section IX shall survive any termination or
       expiration of this Agreement. The termination or expiration of this
       Agreement shall in no case relieve either party from its obligations to
       pay to the other any monies accrued hereunder prior to such termination
       or expiration.

       (f) Employee shall not disclose the terms of this Agreement to any third
       party unless such third party is obligated to keep such information
       confidential.

IX.    Non-Competition
       ---------------

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       (a) During the Employment Period and (i) for a period of one year after
           the termination of this Agreement pursuant to Sections VII(b),
           VII(c), VII(d) or at the option of the Employee pursuant to Section
           VII(a) or (ii) in the event of termination of this Agreement by the
           Company without cause under Section VII (a) for the period of the
           Notice Period during which the Company is continuing to make payments
           to the Employee, the Employee will not directly or indirectly:

           (i)    as an individual, proprietor, partner, stockholder, officer,
       employee, director, joint venturer, investor, lender, or in any other
       capacity whatsoever (other than as the holder of not more than one
       percent (1%) of the total outstanding stock of a publicly held company),
       engage in the business of developing, producing, marketing or selling
       products or services of the kind or type developed or being developed,
       produced, marketed or sold by the Company or any subsidiary of the
       Company while the Employee was employed by the Company provided that the
       foregoing restriction shall not apply after the end of the Employment
       Period to activities that are not related to the Company's year 2000
       business activities.; or

           (ii)   recruit, solicit or induce, or attempt to induce, any employee
       or employees of the Company to terminate their employment with, or
       otherwise cease their relationship with, the Company; or

           (iii)  solicit, divert or take away, or attempt to divert or take
       away, the business or patronage of any of the clients, customers or
       accounts, or prospective clients, customers or accounts, of the Company
       which were contacted, solicited, served or known by the Employee while
       employed by the Company.

       (b) If any restriction set forth in this Section IX is found by any court
       of competent jurisdiction to be unenforceable because it extends for too
       long a period of time or over too great a range of activities or in too
       broad a geographic area, it shall be interpreted to extend only over the
       maximum period of time, range of activities or geographic area as to
       which it may be enforceable.

       (c) The restrictions contained in this Section IX are necessary for the
       protection of the business and goodwill of the Company and are considered
       by the Employee to be reasonable for such purpose. The Employee agrees
       that any breach of this Section IX will cause the Company substantial and
       irrevocable damage and therefore, in the event of any such breach, in
       addition to such other remedies which may be available, the Company shall
       have the right to seek specific performance and injunctive relief.

X.     Other Agreements
       ----------------

       Employee represents that his performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
employment agreement with any previous employer or any agreement with any
previous employer or other party to keep in confidence proprietary information,
knowledge or data acquired by him in accordance or in trust 

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prior to his employment with the Company or to refrain from competing, directly
or indirectly, with the business of such previous employer or any other party.
Employee has executed the Company's standard confidentiality and nondisclosure
agreement.

XI.     Notices
        -------

        All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or, if mailed, when mailed by certified or registered mail,
postage prepaid, or by recorded delivery service to the parties at the addresses
set forth below their signatures to this Agreement or at such other address as
may be given in writing by either party to the other party in accordance with
this Section XI.

XII.    Assignability
        -------------

        Employee acknowledges that the Company is entering into this Agreement
in reliance upon the personal reputation, qualifications and abilities of the
Employee and accordingly, the Employee may not assign his rights or obligations
under this Agreement, either voluntary or by operation of law.

XIII.   Miscellaneous
        -------------

        (a) This Agreement shall not be binding upon the Company until it has
        been executed by a duly authorized officer of the Company. This
        Agreement shall be binding on the parties and their respective
        successors and assigns.

        (b) This Agreement shall be governed by, and construed in accordance
        with, the substantive laws of The Commonwealth of Massachusetts.

        (c) This Agreement constitutes the entire understanding between the
        parties relating to the subject matter of this Agreement and supersedes
        all prior writings, negotiations or understanding with respect thereto
        except the confidentiality and nondisclosure agreement referenced in
        Section X above. No modification or addition to the Agreement shall have
        any effect unless it is set forth in writing and signed by both parties.

        (d) The waiver by the Company or the Employee of any breach of any
        provision of this Agreement shall not be construed as a continuing
        waiver of such breach or as a waiver of other breaches of the same or of
        other provisions of this Agreement.

        (e) Should any provision of this Agreement be declared or be determined
        by any court of competent jurisdiction to be illegal or invalid, the
        validity of the remaining parts, terms, or provisions shall not be
        affected thereby and said illegal and invalid part, term or provision
        shall be deemed not to be a part of this Agreement.

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     (f) The exercisability of Employee's options granted under the Company's
     1997 Stock Incentive Plan in the event of an "acquisition event" as such
     term is defined in such respective plan shall be governed by the terms of
     plan under which such options are granted and any related option
     agreements.

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

                                       Peritus Software Services, Inc.

/s/ John Giordano                          /s/ Allen Deary 
_________________________________      By:_______________________________
Employee Signature

Address:  5 Queen Anne Road            Address:  2 Federal Street
          Hopkinton, Ma 01748                    Billerica, MA  01821-3540
                                                 Attn:  President

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                                   EXHIBIT A
                                   ---------
                                    RELEASE

1.   Release. In consideration of the payments provided to me under a certain
     -------                                                             
employment contract between Peritus Software Services, Inc., a Massachusetts
Corporation (the "Company") and me, I hereby fully, forever, irrevocably and
unconditionally release, remise and discharge the Company, and any subsidiary or
affiliated organization of the Company or their respective current or former
officers, directors, stockholders, corporate affiliates, attorneys, agents and
employees (the "Released Parties") from any and all claims, charges, complaints,
demands, actions, causes of action, suits, rights, debts, amounts of money,
promises, doings, omissions, damages, executions, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind and nature, known
or unknown, which I ever had or now have against the Released Parties,
including, but not limited to, all claims arising out of my employment, all
claims arising out of your separation of my employment, all claims arising from
any failure to reemploy me, all claims of race, sex, national origin, handicap,
religious, sexual orientation, benefit and age discrimination, all employment
discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
(S)2000 et seq., the Age Discrimination in Employment Act, 29 U.S.C. (S)621 et
seq., the Americans with Disabilities Act of 1990, 29 U.S.C. (S)12101 et seq.,
The Employee Retirement Income Security Act of 1974, 29 U.S.C. (S)1001 et seq.,
and similar state or local statutes, wrongful discharge claims, common law tort,
defamation, breach of contract and other common law claims, and any claims under
any other federal, state or local statutes or ordinances not expressly
referenced above.

2.   Entire Understanding and Applicable Law. This Release contains and
     ---------------------------------------                               
constitutes my entire understanding with respect to the settlement of claims
against the Company and the Released Parties and cancels all previous oral and
written negotiations, agreements, commitments, and writings in connection
therewith.  This Release shall be governed by the substantive laws of The
Commonwealth of Massachusetts to the extent not preempted by federal law.

3.   Acknowledgements. I acknowledge that I have been given at least twenty-one
     ----------------                                                           
(21) days to consider this Release and that the Company advised me to consult
with any attorney of my own choosing prior to signing this Release.  I
acknowledge that I may revoke this Release for a period of seven (7) days after
signing it, and the Release shall not be effective or enforceable until the
expiration of this seven (7) day revocation period.



Date:  __________________             Employee's Signature: __________________
 
                                      Employee's Name: John Giordano

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