Exhibit 10.5

                              EMPLOYMENT AGREEMENT


                  THIS  EMPLOYMENT  AGREEMENT  (the  "Agreement"),  dated  as of
December 31, 2001,  is entered into by and among Patrick  Farrell  ("Employee"),
iParty Corp., a Delaware  corporation (the "Company"),  and iParty Retail Stores
Corp., a Delaware corporation (the "Subsidiary").

                              W I T N E S S E T H :
                              - - - - - - - - - -

                  WHEREAS, the Company and Employee have previously entered into
an Amended and Restated  Employment  Agreement dated as of November 1, 2000 (the
"Prior Employment Agreement"), which will expire on December 31, 2001; and

                  WHEREAS,  the Company and Employee each desire to continue the
employment.

                  NOW,  THEREFORE,  in  consideration  of the mutual  agreements
hereinafter set forth, and intending to be legally bound hereby,  Employee,  the
Company  and the  Subsidiary  have agreed and do hereby  agree to  continue  the
employment of Employee as follows:

                  1.       Duties and Title.  The Company  does hereby  agree to
                           ----------------
continue to employ,  engage and hire Employee as President  and Chief  Financial
Officer of the Company and as President of the Subsidiary  during the Employment
Period.  Employee  does hereby  accept and agree to such  continuance.  Employee
agrees  to  perform  any  and  all  other  duties  and to  assume  any  and  all
responsibilities  that may be assigned to him.  Employee  shall  devote his full
time (at least forty (40) hours per week),  energy and skill to the  performance
of his duties for the Company and the Subsidiary.

                  2.       Compensation.
                           ------------

                           (a) The  Company  shall  pay  Employee  and  Employee
agrees and  accepts  from the  Company,  in full  payment for his  services  and
promises to the  Company,  a base salary (the "Base  Salary") at the rate of One
Hundred Sixty-Five Thousand Dollars  ($165,000.00) per year, less all applicable
payroll  withholding  taxes and deductions for insurance  contributions  and the
like.  The Base Salary shall be payable in accordance  with the regular  payroll
practices of the Company, as in effect from time to time.

                           (b) Employee shall also be eligible to participate in
any executive bonus plan established from time to time by the Board of Directors
(the "Bonus Plan").


<PAGE>

                  3.       Benefits.  Employee  shall be eligible to participate
                           --------
in any  medical  and dental  plan  adopted by the Company for the benefit of its
employees.  Employee  shall also be eligible to receive any other  benefits that
the Company makes available to its employees from time to time.

                  4.       Vacation. Employee is entitled to four (4) weeks paid
                           --------
vacation  per calendar  year,  with such  vacation to be scheduled  and taken in
accordance with the Company's standard vacation policies.

                  5.       Employment  Period. The Company shall employ Employee
                           ------------------
for a period  commencing as of January 1, 2002 and ending on March 31, 2004 (the
"Employment Period"), unless sooner terminated in accordance with the provisions
of this Agreement.

                  6.       Termination of Employment.
                           -------------------------

                           (a) Notwithstanding  anything herein contained, if on
or after  January  1, 2002 and prior to the end of the  Employment  Period,  the
Company  or  Employee,  as the case may be,  shall  have the right to  terminate
Employee's services under this Agreement.  Termination of Employee's  employment
shall be deemed  termination  for  "cause"  if on  account  of:  (i)  Employee's
voluntary resignation (other than as a result of Employee's death or disability,
or for  the  reasons  set  forth  in  subparagraphs  (x),  (y)  and  (z));  (ii)
intentionally fail to follow any commercially reasonable and lawful direction of
the Board of  Directors  and  continue to fail to follow such  direction  within
fifteen  (15) days of  written  notification  of the  same;  (iii)  Employee  is
convicted of a felony crime;  (iv) Employee commits any act of fraud against the
Company;  and (v)  Employee  commits  any act or omits to take any action in bad
faith  and to  the  detriment  of  the  Company.  Cessation  of  the  employment
relationship  between  Employee and the Company by reason of Employee's death or
permanent disability, or Employee's resignation because of (x) the assignment to
him  of  duties  materially   inconsistent  with  respect  to  his  position  as
contemplated by this Agreement,  (y) a change in his title (set forth Section 1)
without  his  expressed  written  consent,  or (z) any  material  failure by the
Company  to  comply  with the  provisions  of this  Agreement,  shall be  deemed
termination without "cause."

                           (b)  Termination  because of  Disabilities.  Employee
                                -------------------------------------
shall be considered to be "disabled"  for purposes of this Section 6 if Employee
is unable to perform his customary  duties under this Agreement for a continuous
period of six (6) months  because of  physical  or mental  impairment,  in which
event this  Agreement  shall  terminate  upon thirty (30) days written notice to
Employee and no further compensation shall be payable to Employee, except as may
otherwise be provided under any  disability  insurance  policy.  Notwithstanding
anything to the  contrary  above,  if Employee  is  terminated  pursuant to this
Section 6(b), he shall be entitled to any accrued but unused  vacation time (the
"Unused Vacation Payment").  The Unused Vacation Payment shall be payable on the
first payroll  disbursement date for the month following the date this Agreement
terminates.

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                           (c)  Effect  of  Termination   Without  "Cause".   If
                                -----------------------------------------
Employee's  employment  is  terminated  without  "cause," the Company shall give
notice  of  termination  of  Employee's  services  hereunder  as of a date to be
specified  in such  notice and this  Agreement  shall  terminate  on the date so
specified (the "Without  Cause  Termination  Date").  The Company shall also pay
Employee: (i) an amount equal to six (6) months Base Salary (less all applicable
payroll withholding taxes and deductions)  ("Severance Payment"),  (ii) a bonus,
if any, which Employee may be entitled to under the provisions of the Bonus Plan
(the "Bonus"),  and (iii) the Unused  Vacation  Payment.  The Severance  Payment
shall be  payable  in  accordance  with the  regular  payroll  practices  of the
Company.  The Bonus shall be payable as and when  payable  under the Bonus Plan.
The Unused Vacation  Payment shall be payable on the first payroll  disbursement
date for the month following the Without Cause Termination Date.

                           Upon termination  without "cause",  the Company shall
also  extend the  benefits  that  Employee  is granted  under  Section 3 of this
Agreement  for a period of six (6) months  from the  Without  Cause  Termination
Date.

                           (d) Effect of Termination for "Cause".  If Employee's
                               --------------------------------
employment  is  terminated  by the Company for "cause,"  the Company  shall give
notice  of  termination  of  Employee's  services  hereunder  as of a date to be
specified  in such  notice and this  Agreement  shall  terminate  on the date so
specified (the "Termination  Date").  Employee shall be entitled to receive only
his Base Salary at the rate provided in Section 2(a) to the Termination Date and
Employee shall not be entitled to any other compensation or benefits not already
earned and vested on the Termination Date.

                           (e)  If   Employee's   employment  is  terminated  by
Employee's  voluntary  resignation  (other  than for the  reasons  set  forth in
paragraphs  (x), (y) or (z) or paragraph (a) above)  Employee  agrees to provide
the Company with thirty (30) days' advance  written  notice of such  termination
and this Agreement  shall  terminate on the date so specified (the  "Resignation
Termination  Date").  If  Employee  resigns,  he shall be entitled to the Unused
Vacation  Payment.  The Unused  Vacation  Payment  shall be payable on the first
payroll  disbursement  date for the month following the Resignation  Termination
Date.

                           (f)  Nothing  contained  in this  Section  6 shall be
deemed  to limit  any  other  right  the  Company  or the  Employee  may have to
terminate Employee's employment hereunder upon any ground permitted by law.

                  7.       Effect on Prior Employment Agreement;  Termination of
                           -----------------------------------------------------
Prior Agreements.  The Prior Employment Agreement shall remain in effect through
----------------
December  31,  2001,  and  shall  continue  to  apply  to  all  duties,  rights,
compensation  and other  benefits of or due to Employee for all periods  through
December 31, 2001 (except as otherwise agreed to in writing by the parties). For
all  periods  from and after  January 1, 2002,  this  Agreement  terminates  and
supercedes any and all prior agreements and  understandings  between the parties
with respect to  employment or with respect to the  compensation  of Employee by

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<PAGE>

the Company, including the Prior Employment Agreement.

                  8.       Nondisclosure and Nonuse of Confidential Information.
                           -----------------------------------------------------
Employee  shall not use or disclose to any other  person  (except as required by
applicable  law or for the  proper  performance  of his  duties  hereunder)  any
confidential  information  obtained by him incident to his  employment  or other
associations with the Company and the Subsidiary. Employee understands that this
restriction shall continue to apply after his employment terminates,  regardless
of the reason for such termination.

                  9.       Non-competition.    During   Employee's    employment
                           ---------------
hereunder  and for a period  of one (1) year  thereafter  (the  "Non-competition
Period"),  Employee shall not, without permission of the Company:  (i) engage in
any activity, whether as owner, partner, investor,  consultant, agent, employee,
co-venturer or otherwise,  that is competitive  with the business of the Company
or the Subsidiary,  or (ii) solicit or do business with, directly or indirectly,
any present or past customer or employee of the Company or the Subsidiary.

                  10.      Enforcement.  The Company and  Employee  agree that a
                           -----------
breach of the  provisions  of  Sections 8 or 9 hereof  would  cause  irreparable
damage to the Company or the  Subsidiary and that recovery by the Company or the
Subsidiary  of money damages  would not  constitute an adequate  remedy for such
breach.  Accordingly,  the Company,  the  Subsidiary and Employee agree that the
provisions of Sections 8 and 9 hereof may be  specifically  enforced in addition
to any other rights or remedies available on account of such breach.

                  11.      Assignment.  This Agreement is personal in its nature
                           ----------
and  neither of the  parties  hereto  shall,  without  the consent of the other,
assign or  transfer  this  Agreement  or any  rights or  obligations  hereunder;
provided that, in the event of a merger or consolidation of the Company with any
other entity, this Agreement shall, subject to the provisions hereof, be binding
upon and  inure to the  benefit  of such  successor  and  such  successor  shall
discharge and perform all the promises, covenants, duties and obligations of the
Company hereunder.  In addition, the Company or the Subsidiary shall require any
purchaser  of all,  or  substantially  all, of its assets to assume and agree to
perform  this  Agreement  in the same  manner  and to the same  extent  that the
Company  would be  required  to  perform  it if no sale of its  assets had taken
place.

                  12.      Governing  Law. This  Agreement  shall be governed in
                           --------------
all respects, whether as to validity,  construction,  capacity,  performance, or
otherwise, by the laws of The Commonwealth of Massachusetts. Except as otherwise
provided in Section 14 hereof, no action involving this Agreement may be brought
except in a court of The  Commonwealth of Massachusetts  (or, if appropriate,  a
federal court located in Massachusetts).

                  13.      Entire Agreement.  This Agreement embodies the entire
                           ----------------
agreement of the parties  respecting  those matters  within its scope and may be
modified only in writing executed by the Company, the Subsidiary and Employee.

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<PAGE>

                  14.      Arbitration.  All claims,  disputes and other matters
                           -----------
in question between the parties arising out of the employment relationship shall
be decided by arbitration conducted in Boston,  Massachusetts in accordance with
the rules of the American Arbitration  Association,  unless the parties mutually
agree otherwise. The award by the arbitrator shall be final, and judgment may be
entered upon it in accordance with applicable law in a court of The Commonwealth
of Massachusetts (or, if appropriate, a federal court located in Massachusetts).

                  15.      Waiver. Failure to insist upon strict compliance with
                           ------
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition,  nor shall any waiver or relinquishment of, or
failure to insist upon strict  compliance  with, any right or power hereunder at
any one or more  times be deemed a waiver  or  relinquishment  of such  right or
power at any other time or times.

                  16.      Severability.  In the event that a court of competent
                           ------------
jurisdiction  determines  that any portion of this  Agreement is in violation of
any statute or public  policy,  then only the  portions of this  Agreement  that
violate  such statute or public  policy shall be stricken.  All portions of this
Agreement  that do not violate  such statute or public  policy  continue in full
force and  effect.  Further,  any  court  order  striking  any  portion  of this
Agreement  shall modify the stricken terms to give as much effect as possible to
the intentions of the parties under this Agreement.

                  17.      Notices. Any notice,  consent, or other communication
                           -------
required or  permitted  to be given  hereunder  shall be in writing and shall be
deemed to have been  given  three (3) days after the date sent if sent by United
States certified mail,  return receipt  requested,  with proper postage thereon,
one (1) day  after  the  date  sent if sent by  overnight  courier  of  national
recognition,  or on the day of delivery if by hand to an officer of the Company.
Notices shall be addressed as follows:

        (a)      If to Employee:  Patrick Farrell
                                  _______________
                                  _______________

        (b)      If to the Company         iParty Corp.
                 or Subsidiary:            1457 V.F.W. Parkway
                                           West Roxbury, MA  02132
                                           Attn: Sal Perisano, CEO

        (c)      With a copy to:           Posternak, Blankstein & Lund, L.L.P.
                                           100 Charles River Plaza
                                           Boston, MA  02114
                                           Attn: Donald H. Siegel, P.C.

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<PAGE>

or at such other  address or addresses as the party  addressed  may from time to
time designate by written notice.

                  18.      Headings;   Counterparts.   The   headings   in  this
                           ------------------------
Agreement  are solely for the  convenience  of  reference  and shall be given no
effect in the construction or interpretation  of this Agreement.  This Agreement
may be executed in any number of counterparts,  each of which shall be deemed an
original,  but  all  of  which  together  shall  constitute  one  and  the  same
instrument.

                            [SIGNATURE PAGE FOLLOWS]



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<PAGE>

                           IN WITNESS  WHEREOF,  the  undersigned  have executed
this  Agreement  or cause this  Agreement to be executed on its behalf as of the
date first written above.

                                            iPARTY CORP.


                                            By: /s/ Sal Perisano
                                                --------------------------------
                                                Sal Perisano
                                                Chief Executive Officer


                                            iPARTY RETAIL STORES CORP.


                                            By: /s/ Sal Perisano
                                                --------------------------------
                                                Sal Perisano
                                                Chief Executive Officer


                                            EMPLOYEE


                                            /s/ Patrick Farrell
                                            ------------------------------------
                                            Patrick Farrell




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