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                                                                    Exhibit 10.3
                              EMPLOYMENT AGREEMENT


     Agreement made as of the 9th day of September 1999 (the "Effective Date"),
by and between Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), and John Giordano (the "Employee").  This Agreement supercedes all
prior Agreements with the exception of the Vesting paragraph (2nd paragraph) of
the Letter dated April 9, 1999 concerning the $120,000 bonus paid upon
Employee's acceptance of the additional position of President and Chief
Executive Officer.

     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 titles will be President and Chief Executive Officer and
Chief Financial Officer or such other title as may be mutually agreed upon
between Employee and the Company.  The Employee will report to Board of
Directors.

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

     The Company hereby agrees to continue to employ the Employee and the
Employee hereby accepts employment with the Company for a period (the
"Employment Period") commencing on the August 19, 1999 and ending August 19,
2002 unless earlier terminated pursuant to the provisions of Section VII below.
This Agreement shall remain in full force and effect until expiration hereof
unless 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.

(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.


(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.

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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)  Upon Change of Control of the Company including the acquisition of more
     than 50% of the equity by any person, any merger, consolidation or sale of
     substantially all of the assets of the Company.

(c)  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.

(d)  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.

(e)  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 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(c),
     VII(d), VII(e), 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)  If termination of this Agreement at the option of the Company pursuant to
     Section VII (a), or pursuant to Section VII (b) occurs after September 30,
     1999, the Company shall continue to pay to the Employee the Base Salary and
     provide normal benefits 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

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     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. If this Agreement is
     terminated pursuant to Section VII (a) or (b) on or before September 30,
     1999, no additional payments will be made to Employee.

(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
     ---------------

(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; 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

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     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 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.

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(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.

(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.



                                             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.
2000 et seq., the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq.,
the Americans with Disabilities Act of 1990, 29 U.S.C. 12101 et seq., The
Employee Retirement Income Security Act of 1974, 29 U.S.C. 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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