<PAGE>

                                                                   EXHIBIT 10.32

                                                                  CONFORMED COPY



                              EMPLOYMENT AGREEMENT



          THIS EMPLOYMENT AGREEMENT (the "Agreement") is made this 26th day of
February, 1998, between SMARTALK TELESERVICES, INC., a California corporation
(the "Company") and ERICH L. SPANGENBERG (the "Executive").

          WHEREAS, the parties hereto previously have entered into that certain
Employment Agreement, dated April 14, 1997 (the "1997 Employment Agreement"),
pursuant to which, among other things, Executive initially was employed as the
President and Chief Operating Officer of the Company;

          WHEREAS, the Executive subsequently was designated as Vice Chairman of
the Board of Directors of the Company (the "Board") and ceased to serve as Chief
Operating Officer of the Company;

          WHEREAS, the parties hereto wish to enter into an employment agreement
to employ the Executive as Vice Chairman of the Board and Chief Executive
Officer of the Company, and to set forth certain additional agreements between
the Executive and the Company.

          NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, the parties hereto agree as follows:


          1.  Term.
              ----

          The Company will employ the Executive, and the Executive will serve
the Company, under the terms of this Agreement for an initial term of three
years, commencing on February 26, 1998.  Effective as of the expiration of such
initial three-year term and as of each anniversary date thereof, the term of
this Agreement shall be extended for an additional one-year period unless, not
later than six months prior to each such respective date, either party hereto
shall have given notice to the other that the term shall not be so extended.
Notwithstanding the foregoing, the Executive's employment hereunder may be
earlier terminated, as provided in Section 4 hereof.  The term of this
Agreement, as in effect from time to time in accordance with the foregoing,
shall be referred to herein as the "Term".  The period of time between the
commencement and the termination of the Executive's employment hereunder shall
be referred to herein as the "Employment Period."


          2.  Employment.
              ----------

              (a) Positions.  The Company hereby employs the Executive for the
                  ---------
Employment Period as its Chief Executive Officer on the terms and conditions set
forth in this Agreement.  In addition, Executive shall serve as the Vice
Chairman of the Board of Directors of the Company.
<PAGE>

              (b) Authority and Duties.  The Executive shall exercise such
                  --------------------
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's positions,
commensurate with the authority vested in the Executive pursuant to this
Agreement and consistent with the By-Laws of the Company as in effect on the
date hereof.  During the Employment Period, the Executive shall devote full
business time, skill and efforts to the business of the Company.
Notwithstanding the foregoing, but provided such activities and service do not
materially interfere or conflict with the performance of his duties hereunder,
the Executive may (i) make and manage personal business investments of his
choice, (ii) provide consulting or similar services to persons or entities not
in competition with the Company, (iii) serve in any capacity with any civic,
educational or charitable organization, or any trade association, and (iv) with
the approval of the Board, serve on the boards of directors of other
corporations.


          3.  Compensation and Benefits.
              -------------------------

              (a) Salary. During the Employment Period, the Company shall pay to
                  ------
the Executive, as compensation for the performance of his duties and obligations
under this Agreement, a base salary at the rate of $307,000 per annum, payable
in arrears not less frequently than monthly in accordance with the normal
payroll practices of the Company (the "Base Salary"). Such Base Salary shall be
subject to review each year for possible increase by the Board in its sole
discretion, but shall in no event be decreased from its then-existing level
during the Employment Period.

              (b) Annual Bonus.  The Executive shall earn bonus amounts in the
                  ------------
form of cash and stock awards, to be paid to the Executive within sixty (60)
days following the year-end audit, based upon the satisfaction of performance
criteria that will be established by a committee of the Board (the "Compensation
Committee") in its discretion and upon consultation with the Executive at the
beginning of each year, but in no case after January 31, subject to the approval
of the Board. Such performance criteria will include corporate performance goals
consistent with the Company's business plan for the year, as well as individual
objectives for the Executive's performance that are separate from, but are
consistent with, the Company's business plan. The final determinations as to the
actual corporate and individual performance against the pre-established goals
and objectives, and the amounts of any additional bonus payout in relationship
to such performance, shall be made by the Compensation Committee in its sole
discretion. The cash and stock components of the Executive's bonus awards shall
be in the same average proportion as the awards granted to the other senior
management of the Company. For purposes of this Agreement, senior management of
the Company shall be the chief operating officer, the executive vice
president(s), the chief financial officer and the general counsel.

              (c) Car Allowance.  Employer shall pay to Executive as an
                  -------------
automobile allowance the sum of $1,000 per month during the Employment Period in
lieu of any other provision for an automobile, insurance, maintenance, gasoline
and expenses.

                                      2
<PAGE>

          (d) Insurance Policies.   The Company shall pay to the Executive the
              ------------------
premium amount of $7,000 per year for Executive to maintain in force during the
Employment Period, life and disability insurance on the Executive, the
beneficiary of which shall be designated by the Executive (the "Executive
Policies").  The Company may also purchase "key-person" life insurance policies
on the Executive's life in such amounts and of such types as is determined by
the Board.  The Executive shall cooperate fully with the Company in obtaining
such insurance and shall submit to such physical examinations and provide such
information as is reasonably required to obtain and maintain such policies.
Neither the Executive nor his successor-in-interest or estate shall have any
interest in any such key-person policies so obtained.

          (e) Other Benefits.  During the Employment Period, the Executive shall
              --------------
receive such other life insurance, pension, disability insurance, health
insurance, holiday, vacation and sick pay benefits and other benefits which the
Company extends, as a matter of policy, to its executive employees and, except
as otherwise provided herein, shall be entitled to participate in all deferred
compensation and other incentive plans of the Company on the same basis as other
like employees of the Company.  Without limiting the generality of the
foregoing, the Executive shall be entitled to three (3) weeks vacation during
each year of the Employment Period, which shall be scheduled in the Executive's
discretion, subject to and taking into account the business exigencies of the
Company.  Unused vacation may be accrued up to a maximum of six (6) weeks of
unused vacation, and thereafter the Executive shall cease to accrue vacation
thereafter until used.

          (f) Business Expenses.  During the Employment Period, the Company
              -----------------
shall promptly reimburse the Executive for all documented reasonable business
expenses incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies and standards of similar or
comparable companies.

          (g) Moving Allowance.  Executive shall be provided with a non-
              ----------------
accountable moving allowance of $150,000 in connection with his relocation to a
location in proximity to the Company's new headquarters in Columbus, Ohio.

      4.  Termination of Employment.
          -------------------------

          (a) Termination for Cause.  The Company may terminate the Executive's
              ---------------------
employment hereunder for cause.  For purposes of this Agreement and subject to
the Executive's opportunity to cure as provided in Section 4(c) hereof, the
Company shall have "cause" to terminate the Executive's employment hereunder if:

                    (i) The Executive has materially breached a material
          provision of this Agreement, and, if such breach is curable, it has
          not been cured or reasonably commenced being cured within thirty (30)
          days after written notice from the Company;

                                       3
<PAGE>

                    (ii) The Executive is convicted of or pleads guilty to a
          felony involving financial misconduct or moral turpitude.


          (b) Termination for Good Reason.  The Executive shall have the right
              ---------------------------
at any time to terminate his employment with the Company for any reason.  For
purposes of this Agreement and subject to the Company's opportunity to cure as
provided in Section 4(c) hereof, the Executive shall have "good reason" to
terminate his employment hereunder if such termination shall be the result of:


                    (i)  a material diminution during the Employment Period in
          the Executive's duties or responsibilities as set forth in Section 2
          hereof;

                    (ii) a breach by the Company of the compensation and
          benefits provisions set forth in Section 3 hereof;

                   (iii) termination by the Executive for any reason within 12
          months following the occurrence of a Change in Control (as defined in
          Section 4(e) hereof);

                    (iv) a material breach by the Company of any material terms
          of this Agreement.


          (c) Notice and Opportunity to Cure.  Notwithstanding the foregoing, it
              ------------------------------
shall be a condition precedent to the Company's right to terminate the
Executive's employment for "cause" and the Executive's right to terminate his
employment for "good reason" (other than pursuant to Section 4(b)(iii) hereof)
that (1) the party seeking the termination shall first have given the other
party written notice stating with specificity the reason for the termination
("breach") and (2) if such breach is susceptible of cure or remedy, a period of
30 days from and after the giving of such notice shall have elapsed without the
breaching party having effectively cured or remedied such breach during such 30-
day period, unless such breach cannot be cured or remedied within 30 days, in
which case the period for remedy or cure shall be extended for a reasonable time
(not to exceed 30 days) provided the breaching party has made and continues to
make a diligent effort to effect such remedy or cure.

          (d) Termination Upon Death or Permanent and Total Disability.  The
              --------------------------------------------------------
Employment Period shall be terminated by the death of the Executive.  The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the disability ("Disability").  If the
Employment Period is terminated by reason of Disability of the Executive, the
Company shall give 30-days' advance written notice to that effect to the
Executive.

                                       4
<PAGE>

               (e) Definition of Change in Control.  A "Change in Control" shall
                   -------------------------------
be deemed to have taken place if:


                    (i) there shall be consummated any consolidation or merger
          of the Company in which the Company is not the continuing or surviving
          corporation or pursuant to which shares of the Company's capital stock
          are converted into cash, securities or other property (other than a
          consolidation or merger of the Company in which the holders of the
          Company's voting stock immediately prior to the consolidation or
          merger shall, upon consummation of the consolidation or merger, own at
          least 50% of the voting stock) or any sale, lease, exchange or other
          transfer (in one transaction or a series of transactions contemplated
          or arranged by any party as a single plan) of all or substantially all
          of the assets of the Company; or

                   (ii) any person (as such term is used in Sections 13(d) and
          14(d)(2) of the Securities Exchange Act of 1934, as amended (the
          "Exchange Act")) shall, after the date hereof, become the beneficial
          owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
          directly or indirectly, of securities of the Company representing 35%
          or more of the voting power of all of the then outstanding securities
          of the Company having the right under ordinary circumstances to vote
          in an election of the Board (including, without limitation, any
          securities of the Company that any such person has the right to
          acquire pursuant to any agreement, or upon exercise of conversion
          rights, warrants or options, or otherwise, shall be deemed
          beneficially owned by such person); or

                  (iii) individuals who as of the date hereof constitute the
          entire Board and any new directors whose election by the Company's
          shareholders, or whose nomination for election by the Company's board,
          shall have been approved by a vote of at least a majority of the
          directors then in office who either were directors at the date hereof
          or whose election or nomination for election shall have been so
          approved (the "Continuing Directors") shall cease for any reason to
          constitute a majority of the members of the Board.


          5.  Consequences of Termination.
              ---------------------------

              (a) Termination Without Cause or for Good Reason.  In the event of
                  --------------------------------------------
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:


                    (i) Severance Pay - a lump sum amount equal to three (3)
                        -------------
          times the Executive's Base Salary as in effect immediately prior to

                                       5
<PAGE>

          such termination and the highest bonus paid (including the fair value,
          as of the date of grant, of any bonus paid in the form of stock based
          awards) to the Executive during the Employment Period.

                   (ii) Benefits Continuation - continuation for the longer of
                        ---------------------
          (A) the then remainder of the Term (as if a timely non-renewal notice
          has been given) and (B) 24 months (the "Severance Period") of coverage
          under the group medical care, disability and life insurance benefit
          plans or arrangements in which the Executive is participating at the
          time of termination; provided, however, that the Company's obligation
          to provide such coverages shall be terminated if the Executive obtains
          comparable substitute coverage from another employer at any time
          during the Severance Period.  The Executive shall be entitled, at the
          expiration of the Severance Period, to elect continued medical
          coverage in accordance with Section 4980B of the Internal Revenue Code
          of 1986, as amended (or any successor provision thereto).


          (b) Termination Upon Disability.  In the event of termination of the
              ---------------------------
Executive's employment hereunder by the Company on account of Disability, the
Executive shall be entitled to the following severance pay and benefits:


                    (i) Severance Pay - severance payments in the form of
                        -------------
          continuation of the Executive's Base Salary as in effect immediately
          prior to such termination for a period of the longer of 12 months
          following the first date of Disability and the then remainder of the
          Term (as if a timely non-renewal notice has been given);

                   (ii) Benefits Continuation - the same benefits as provided
                        ---------------------
          in Section 5(a)(ii) above, to be provided during the Employment Period
          while the Executive is suffering from Disability and for a period of
          12 months following the effective date of termination of employment by
          reason of Disability.


          In addition to the foregoing, the Company shall remit to the Executive
any benefits received by the Company, as beneficiary, pursuant to any additional
disability insurance policy which was maintained by the Executive prior to his
employment with the Company.


          (c) Termination Upon Death.  In the event of termination of the
              ----------------------
Executive's employment hereunder on account of the Executive's death, the
Executive's heirs, estate or personal representatives under law, as applicable,
shall be entitled to the payment of the Executive's Base Salary as in effect
immediately prior to death for a period of three calendar months.  The
Executive's beneficiary or estate shall not be required to remit to the Company
any payments received pursuant to any life insurance policy purchased or
maintained pursuant to Section 3(d) above.

                                       6
<PAGE>

          (d) Other Terminations.  In the event of termination of the
              ------------------
Executive's employment hereunder for any reason other than those specified in
subsection (a) through (c) of this Section 5, the Executive shall not be
entitled to any severance pay or benefits continuation contemplated by the
foregoing, except as may otherwise be provided under the applicable benefit
plans or award agreements relating to the Executive.

          (e) Accrued Rights.  Notwithstanding the foregoing provisions of this
              --------------
Section 5, in the event of termination of the Executive's employment hereunder
for any reason, the Executive shall be entitled to payment of any unpaid portion
of his Base Salary through the effective date of termination, and payment of any
accrued but unpaid rights solely in accordance with the terms of any incentive
bonus or employee benefit plan or program of the Company.

          (f) Conditions to Severance Benefits.  (i) The Company shall have the
              --------------------------------
right to seek repayment of the severance payments and benefits provided by this
Section 5 in the event that the Executive fails to honor in accordance with
their terms the provisions of Sections 6, 7 and 8 hereof.

              (ii) For purposes only of this Section, Employee shall be treated
     as having failed to honor the provisions of Sections 6, 7 or 8 hereof only
     upon the vote of two-thirds of the Board following notice of the alleged
     failure by the Company to the Executive, an opportunity for the Executive
     to cure the alleged failure for a period of 30 days from the date of such
     notice and the Executive's opportunity to be heard on the issue by the
     Board.

     6.   Confidentiality.  The Executive agrees that he will not at any
          ---------------
time during the Employment Period or at any time thereafter for any reason, in
any fashion, form or manner, either directly or indirectly, divulge, disclose or
communicate to any person, firm, corporation or other business entity, in any
manner whatsoever, any confidential information or trade secrets concerning the
business of the Company, including, without limiting the generality of the
foregoing, the techniques, methods or systems of its operation or management,
any information regarding its financial matters, or any other material
information concerning the business of the Company (including customer lists),
its manner of operation, its plans or other material data (the "Business").  The
provisions of this Section 6 shall not apply to (i) information disclosed in the
performance of the Executive's duties to the Company based on his good faith
belief that such a disclosure is in the best interests of Company; (ii)
information that is, at the time of the disclosure, public knowledge; (iii)
information disseminated by the Company to third parties in the ordinary course
of business; (iv) information lawfully received by the Executive from a third
party who, based upon inquiry by the Executive, is not bound by a confidential
relationship to the Company; or (v) information disclosed under a requirement of
law or as directed by applicable legal authority having jurisdiction over the
Executive.

                                       7
<PAGE>

          7.  Inventions.  The Executive is hereby retained in a capacity such
              ----------
that the Executive's responsibilities may include the making of technical and
managerial contributions of value to Company.  The Executive hereby assigns to
Company all rights, title and interest in such contributions and inventions made
or conceived by the Executive alone or jointly with others during the Employment
Period which relate to the Business.  This assignment shall include (a) the
right to file and prosecute patent applications on such inventions in any and
all countries, (b) the patent applications filed and patents issuing thereon,
and (c) the right to obtain copyright, trademark or trade name protection for
any such work product.  The Executive shall promptly and fully disclose all such
contributions and inventions to Company and assist Company in obtaining and
protecting the rights therein (including patents thereon), in any and all
countries; provided, however, that said contributions and inventions will be the
property of Company, whether or not patented or registered for copyright,
trademark or trade name protection, as the case may be.  Inventions conceived by
the Executive which are not related to the Business, will remain the property of
the Executive.

          8.  Non-Competition.  The Executive agrees that he shall not during
              ---------------
the Employment Period and for a period of one (1) year thereafter, without the
approval of the Board, directly or indirectly, alone or as partner, joint
venturer, officer, director, employee, consultant, agent, independent contractor
or stockholder (other than as provided below) of any company or business, engage
in any "Competitive Business" within the United States.  For purposes of the
foregoing, the term "Competitive Business" shall mean any business directly
involved in prepaid telecommunications services industry.  Notwithstanding the
foregoing, the Executive shall not be prohibited during the noncompetition
period applicable above from acting as a passive investor where he owns not more
than five percent (5%) of the issued and outstanding capital stock of any
publicly-held company.  During the period that the above noncompetition
restriction applies, the Executive shall not, without the written consent of the
Company, solicit any employee who is under contract with the Company or any
current or future subsidiary or affiliate thereof to terminate his or her
employment; nor shall the Executive solicit employees for any enterprise that
competes with Company; but shall have the right to solicit employees not under
contract with the Company for an enterprise that does not compete with the
Company.

          9.  Breach of Restrictive Covenants.  The parties agree that a breach
              -------------------------------
or violation of Sections 6, 7 or 8 hereof will result in immediate and
irreparable injury and harm to the innocent party, and that such innocent party
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to seek an injunction, specific performance or
other equitable relief to prevent the violation of the obligations hereunder.

         10.  Notice.  For the purposes of this Agreement, notices, demands and
              ------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by

                                       8
<PAGE>

United States certified or registered mail, return receipt requested, postage
prepaid, addressed as follows:

                                       9
<PAGE>

               (a)   If to the Company, to:

                     SmarTalk TeleServices, Inc.
                     1640 South Sepulveda Blvd., Suite 500
                     Los Angeles, CA 90025
                     Attn:  David Hamburger
                     General Counsel


               (b)   If to the Executive, to:

                     Erich L. Spangenberg
                     12136 St. Andrews
                     Rancho Mirage, CA 92270


or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.

          11.  Excise Tax Limit. Notwithstanding anything in this Agreement to
               ----------------
the contrary, in the event it shall be determined that any payment or
distribution by the Company or any other person or entity to or for the benefit
of the Executive is a "parachute payment" (within the meaning of Section 280G of
the Code, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment") in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company (within the meaning of Section 280G of the
Code, and would be subject to the excise tax imposed by Section 4999 of the
Code) (the "Excise Tax"), the Payments shall be reduced to the extent necessary
so that such remaining Payment would not be subject to the excise tax imposed by
Section 4999 of the Code.

          12.  Arbitration; Legal Fees.  Except as provided in Section 9 hereof,
               -----------------------
any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in Los Angeles County, California in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction.  The Company shall reimburse Executive for all reasonable legal
fees and costs and other fees and expenses which Executive may incur in respect
of any dispute or controversy arising under or in connection with this
Agreement; provided, however, that the Company shall not reimburse any such fees
costs and expenses if the fact finder determines that the action brought by the
Executive was frivolous.

          13.  Waiver of Breach.  Any waiver of any breach of this Agreement
               ----------------
shall not be construed to be a continuing waiver or consent to any subsequent
breach on the part either of the Executive or of the Company.

                                      10
<PAGE>

          14.  Non-Assignment; Successors.  Neither party hereto may assign his
               --------------------------
or its rights or delegate his or its duties under this Agreement without the
prior written consent of the other party; provided, however, that: (i) this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company upon any sale of all or substantially all of the
Company's assets, or upon any merger, consolidation or reorganization of the
Company with or into any other corporation, all as though such successors and
assigns of the Company and their respective successors and assigns were the
Company; and (ii)this Agreement shall inure to the benefit of and be binding
upon the heirs, assigns or designees of the Executive to the extent of any
payments due to them hereunder.  As used in this Agreement, the term "Company"
shall be deemed to refer to any such successor or assign of the Company referred
to in the preceding sentence.

          15.  Withholding of Taxes.  All payments required to be made by the
               --------------------
Company to the Executive under this Agreement shall be subject to the
withholding of such amounts, if any, relating to tax, and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.

          16.  Severability.  To the extent any provision of this Agreement or
               ------------
portion thereof shall be invalid or unenforceable, it shall be considered
deleted therefrom and the remainder of such provision and of this Agreement
shall be unaffected and shall continue in full force and effect.

          17.  Director and Officer Insurance. The Company shall use its best
               ------------------------------
efforts to obtain and maintain director's and officer's insurance for the
Executive (in such amounts as are appropriate for executives of businesses
comparable to that of the Company) pursuant to Board of Directors indemnity
agreements then in force and shall give timely notice to the Executive of
termination of any such insurance policy.

          18.  Payments; Mitigation. All amounts payable by the Company to the
               --------------------
Executive under this Agreement shall be paid promptly on the dates required for
such payment in this Agreement without notice or demand. There shall be no right
of set-off or counterclaim in respect of any claim, debt or obligation against
any payment to the Executive, his dependents, beneficiaries or estate provided
for in this Agreement. Any salary, benefits or other amounts paid or to be paid
to Executive or provided to or in respect of the Executive pursuant to this
Agreement shall not be reduced by amounts owing from Executive to the Company.
Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or the arrangements made under any provision of this Agreement.

          19.  Counterparts. This Agreement may be executed in one or more
               ------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

          20.  Governing Law. This Agreement shall be construed, interpreted
               -------------
and enforced in accordance with the laws of the State of California, without
giving effect to the choice of law principles thereof.

                                      11
<PAGE>

          21.  Entire Agreement.  This Agreement constitutes the entire
               ----------------
agreement by the Company and the Executive with respect to the subject matter
hereof and supersedes any and all prior agreements or understandings between the
Executive and the Company with respect to the subject matter hereof, whether
written or oral, including without limitation the 1997 Employment Agreement;
provided, however, that all stock option agreements between the Company and the
Executive shall remain in full force and effect and provided, further, that
Executive shall be entitled to all amounts payable or reimbursable under the
1997 Employment Agreement for periods ending on or prior to the date hereof...
This Agreement may be amended or modified only by a written instrument executed
by the Executive and the Company.

                                  *   *   *

          IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 26, 1998.


                                              SMARTALK TELESERVICES, INC.

                                              By /s/ Robert H. Lorsch
                                                 ------------------------
                                                 Robert H. Lorsch
                                                 Chairman of the Board



                                                 /s/ Erich L. Spangenberg
                                                 ________________________
                                                 Erich L. Spangenberg




                                      12