<PAGE>
 
                                                                   Exhibit 10.20

                              EMPLOYMENT AGREEMENT

  THIS EMPLOYMENT AGREEMENT is made and entered into as of this 14th day of
January, 1999, by and between Allin Corporation, a  Delaware  corporation
("Employer"), and Timothy P. O'Shea ("Employee"), a resident of Pennsylvania.

                                   WITNESETH:
                                   --------- 

  WHEREAS, Employer desires to employ Employee on a full-time and exclusive
basis and Employee is willing to serve on a full-time and exclusive basis, all
upon the terms and conditions hereinafter set forth.

  NOW, THEREFORE, in consideration of the mutual promises and agreements herein
contained and intending to be legally bound hereby, the parties agree as
follows:

  Section 1  Employment.  Subject to the terms and conditions of this Agreement,
  ---------  ----------                                                         
Employer agrees to employ Employee as President of Employer, and Employee
accepts such employment.  Employee will diligently and faithfully and in
conformity with the directions of the Board of Directors of Employer perform the
duties of his employment hereunder, and he will devote his best efforts and
attention on a full-time basis to the performance of said duties.

  Section 2.  Employment Period.  The term of Employee's employment hereunder
  ---------   -----------------                                              
shall begin on January 25th, 1999 and shall continue through December 31, 2001
unless sooner terminated in accordance with the terms of this Section  2
("Employment Period").  The Employment period shall terminate upon (i)
Employee's death or, unless waived by Employer, his disability, either physical
or mental (as determined by Employer's physician) which may reasonably be
anticipated to render him unable, for a period of at least three (3) months,
effectively to perform the obligations, duties and responsibilities of
Employee's employment with Employer; or (ii) the termination of Employee's
employment by the Board of Directors with cause (as hereinafter defined); or
(iii) the passage of fourteen (14) days from the date of delivery by either
party to the other of his or its election to terminate this Agreement.  As used
herein, "cause" shall mean (i) dishonest, fraudulent or illegal conduct; (ii)
misappropriation of Employer funds; (iii) conviction of a felony; (iv) excessive
use of alcohol; (v) use of controlled substances or other addictive behavior;
(vi) unethical business conduct; (vii) breach of any statutory or common law
duty of loyalty to Employer; and (viii) action by Employee which is prejudicial
or injurious to the business or goodwill of Employer or a material breach of
this Agreement.

  Section 3.  Employment Compensation and Other Benefits.
  ---------   ------------------------------------------ 
 
            (a) Salary.  For services performed by Employee during the
            --- ------                                                
            Employment Period, Employer will pay to Employee a salary of One
            Hundred Fifty Thousand dollars ($150,000) per annum, payable in
            equal semi-monthly installments of $6250.00, prorated for any
            partial period of employment.

            (b) Benefits.  During the term of his employment hereunder, Employee
            --- --------                                                        
            will be entitled to the following:

                  (i)  payment by Employer of the premiums for medical insurance
                  coverage for himself and his family consistent with programs
                  from time to time in effect for the employees of Employer;

                  (ii)  up to four weeks of paid vacation each year of
            employment;

                  (iii)  such other benefits as are available to other employees
                  of Employer generally.

            (c) Business Expenses.  Employer will reimburse Employee for
            --- -------------                
            reasonable out-of-pocket expenses incurred by him, in accordance
            with Employer's policies as in effect from time to time, for
            entertainment, travel, lodging and similar items

                                                               Page Exh. 10.20-A
<PAGE>
 
            in connection with the business of Employer, provided that Employee
            properly accounts for and promptly submits appropriate supporting
            documentation with respect to all such expenses.

            (d)  Discretionary Bonus.  The Board of Directors of Employer
            ------------------------                                     
            may, on an annual basis, in its sole and absolute discretion,
            award a bonus to Employee.  Such bonus, if any, shall be
            determined based on Employee's performance and the performance of
            Employer for the respective twelve (12) month periods ending at
            fiscal year end 12/31/99, 12/31/00 and 12/31/01.  After
            consultation with the Board of Directors and the Employee,
            parameters and objectives will be set by the chief executive
            officer of Employer on an annual basis to be utilized as
            guidelines for payment of any discretionary bonus.

            (e)  Stock Options.  Employee acknowledges receipt of options to
            ------------------                                              
            purchase 60,000 shares of Allin Corporation common stock at $____
            per share.  These options are governed by the "1998 Stock Plan of
            Allin Corporation" dated December 31, 1998. The options vest
            ratably at 20% per year on the anniversary of issuance, however,
            all options that have not previously expired or been terminated
            will become fully vested on the date on which (i) Employer sells
            all or substantially all of its assets, (ii) Employer merges with
            another entity in a transaction in which Employer is not the
            surviving corporation, or (iii) any person or group of affiliated
            persons other than the shareholders of Allin Corporation as of
            the date of this Agreement owns or controls 40% or more of
            Employer.  At the sole discretion of Employer's Board of
            Directors, additional options may be issued to Employee, however,
            Employer's Board of Directors is under no obligation to issue
            Employee additional options.

            (f)  Annual Merit Review.  Annually, on or before January 25th of
            ------------------------                                         
            each year, Employer will conduct an annual review of Employee's
            performance under this Agreement and, if deemed appropriate,
            implement adjustments to this Section 3 for such year.
            
            (g)  Liability as an Officer.  Employee will be covered by any
            ----------------------------                                  
            directors and officers insurance policy procured by Employer.
            Employee shall also be entitled to the indemnification set forth
            in Employer's Bylaws with respect to actions taken by officers
            and directors of Employer.

          Section 4.  Conditions of Employment.  As conditions of his employment
          ---------   ------------------------                                  
and in consideration of his employment, Employee covenants and agrees as
follows:

            (a)  that, during the Employment Period, he will devote his full
            time, services and attention and best efforts to the performance of
            his duties and to the promotion of the business and interests of
            Employer;

            (b)  that, during the Employment Period he will not, without the
            prior written consent of the Board of Directors of Employer,
            directly or indirectly, as a stockholder (except as a stockholder
            owning beneficially or of record less than five percent (5%) of the
            outstanding shares of any class of stock of any issuer listed on a
            national securities exchange), or as an officer, director, manager,
            member, employee, partner, joint venturer, proprietor or otherwise,
            engage in, become interested in, consult with, lend to or borrow
            from, advise or negotiate for or on behalf of, any business which is
            of the type in which Employer or any affiliate or subsidiary of
            Employer engages during the Employment Period; provided that the
            prohibition contained in this subsection 4(b) shall not apply to any
            business which Employer was engaged during the Employment Period if,
            during the three year period thereafter, Employer permanently ceases
            to be engaged in such business;

                                                               Page Exh. 10.20-B
<PAGE>
 
            (c)  that, during the Employment Period, and for a period one (1)
            year thereafter, he will not directly or indirectly influence or
            attempt to influence any customer of Employer to terminate or modify
            any written or oral agreements in place with Employer;

            (d)  that, during the Employment Period, and for a period of one (1)
            year thereafter, he will not solicit other employees of Employer or
            any affiliate or subsidiary of Employer, directly or indirectly, for
            the purpose of enticing them to leave their employment with Employer
            or any affiliate or subsidiary of Employer;

            (e)  that, during the Employment Period and for a period of one (1)
            year thereafter he will make full and complete disclosure of the
            existence of this Agreement and the content of this Section 4 to all
            prospective employers with whom he may discuss possible employment.

            (f)  that, he will refrain from directly or indirectly disclosing,
            making available or using or causing to be used in any manner
            whatsoever, any information of Employer of a proprietary or
            confidential nature (including without limitation, information
            regarding inventions, processes, formulas, systems, plans, programs,
            studies, techniques, "know-how," trade secrets, income or earnings,
            tax data, customer lists and contracts to which Employer is a party,
            but excluding any such information which may be in the public domain
            through proper means) and, upon termination of his employment, such
            information, to the extent that it has been reduced to writing
            (including any and all copies thereof), together with all copies of
            all forms, documents and materials of every kind, whether
            confidential or otherwise, shall forthwith be returned to the
            Employer and shall not be retained by Employee or furnished to any
            third party, either by sample, facsimile or by verbal communication;

            (g)  that, during the Employment Period, and for a period of one (1)
            year thereafter, he will refrain from any disparagement, direct or
            indirect, through innuendo or otherwise, of Employer or any of its
            employees, agents, officers, directors, shareholders or affiliates;

            (h)  that, during the Employment Period, he will not, without the
            prior written consent in each case of the Board of Directors of
            Employer: (i) participate actively in any other business interests
            or investments which would conflict with his responsibilities under
            this Agreement, or (ii) borrow money from, or lend to, customers
            (except those commercial institutions whose business it is to lend
            money) or individuals or firms from which Employer or any affiliate
            or subsidiary of Employer buys services, materials, equipment or
            supplies, or with whom Employer or any affiliate or subsidiary does
            business;

            (i)  that, during the Employment Period, he will not, without the
            prior written consent in each case of the Board of Directors of
            Employer (i) exchange goods, products or services of Employer in
            return for goods, products or services of any individual or firm or
            (ii) accept gifts or favors from any outside organization or agency
            which, individually or collectively, may cause undue influence in
            his selection of goods, products or services for Employer;

            (j)  that, after the termination of his employment, he will not
            secure, or attempt to secure, from any employee or former employee
            of Employer or any affiliate or subsidiary of Employer, any
            information relating to Employer or any affiliate or subsidiary of
            Employer or their business operations; and

                                                               Page Exh. 10.20-C
<PAGE>
 
            (k)  that he will promptly and voluntarily advise the Board of
            Directors of Employer of any activities which might result in a
            conflict of interest with his duties to Employer hereunder, and,
            further, will make such other and further disclosures as Employer
            may reasonably request from time to time.

            Employee represents and warrants to Employer that, notwithstanding
            the operation of the covenants contained in this Section 4, upon the
            termination of his employment hereunder, Employee will be able to
            obtain employment for the purpose of earning a livelihood.

          Section 5.  Injunctive Relief.  Because the services to be performed
          ---------   -----------------                                       
by Employee hereunder are of a special, unique, unusual, confidential
extraordinary and intellectual character which character renders such services
unique and because Employee will acquire by reason of his employment and
association with Employer an extensive knowledge of Employer's trade secrets,
customers, procedures, and other confidential information, the parties hereto
recognize and acknowledge that, in the event of a breach or threat of breach by
Employee of any of the terms and provisions contained in Section 4 or Section 7
of this Agreement, monetary damages alone to Employer would not be an adequate
remedy for a breach of any of such terms and provisions.  Therefore, it is
agreed that in the event of a beach or threat of a breach of any of the
provisions of Section 4 or Section 7 of this Agreement by Employee, Employer
shall be entitled to an immediate injunction from any court of competent
jurisdiction restraining Employee, as well as any third parties including
successor employers of Employee whose joinder may be necessary to effect full
and complete relief, from committing or continuing to commit a breach of such
provisions without the showing or proving of actual damages.  Any preliminary
injunction or restraining order shall continue in full force and effect until
any and all disputes between the parties to such injunction or order regarding
this Agreement have been finally resolved.  Employee hereby agrees to pay all
costs of suit incurred by Employer, including but not limited to reasonable
attorneys' fees, in obtaining any such injunction or order.  Employee hereby
waives any right he may have to require Employer to post a bond or other
security with respect to obtaining or continuing any such injunction or
temporary restraining order and, further, hereby releases Employer, its
officers, directors, employees and agents from and waives any claim for damages
against them which he might have with respect to Employer obtaining in good
faith any injunctions or restraining order pursuant to this Agreement.

          Section 6.  Absence of Restrictions.  Employee will promptly submit to
          ---------   -----------------------                                   
Employer written disclosures of all inventions, improvements, discoveries,
technological innovations and new ideas, relating to Employer's business,
whether or not patentable (hereinafter called "Inventions"), which are directly
or indirectly made, conceived, created or prepared by Employee, alone or jointly
with others, during the Employment Period.  Worldwide right, title and interest
in and to the intellectual property rights (including but not limited to
copyrights created in, patents to, or any other form of legal protection as may
be obtained or obtainable in the United States of America or any foreign
country), relating to all such Inventions that shall be within the existing or
contemplated scope of Employer's business at the time such inventions are made
or conceived or which result from or are suggested by any work Employee or
others may do for or on behalf of Employer, shall belong to Employer.  Employee
will assign all right, title and interest in and to such intellectual property
rights to Employer, and upon request of Employer, will at any time during the
Employment Period and after termination of Employee's employment for any reason,
execute all proper papers for use in applying for, obtaining, maintaining and
enforcing such copyrights, patents or other legal protection as Employer may
desire and will execute and deliver all proper assignments thereof, when so
requested, without remuneration but at the expense of Employer.


                                                               Page Exh. 10.20-D
<PAGE>
 
          Section 7.  Patents and Inventions.  Employee will promptly submit to
          ---------   ----------------------                                   
Employer written disclosures of all inventions, improvements, discoveries and
new ideas, relating to Employer's business, whether or not patentable
(hereinafter called "Inventions"), which are made or conceived by Employee,
alone or jointly with others, during the period during which Employee is
employed by Employer.  Title to all such Inventions that shall be within the
existing or contemplated scope of Employer's business at the time such
Inventions are made or conceived or which result from or are suggested by any
work Employee or others may do for or on behalf of Employer, together with such
patent, patents or other legal protection as may be obtained thereon in the
United States of America and all foreign countries, shall belong to Employer.
Employee will assign any rights or interest in such title to Employer, and upon
the request of Employer, will at any time during the period during which
Employee is employed by Employer and after termination of Employee's employment
for any reason, execute all proper papers for use in applying for, obtaining,
maintaining and enforcing such patents or other legal protection as Employer may
desire and will execute and deliver all proper assignments thereof, when so
requested, without remuneration but at the expense of Employer.

          Section 8.  General.
          ---------   ------- 

               (a)  Interpretation.  If the provisions of subsections 4(b), 4(c)
               -------------------                                              
               or 4(d) of this Agreement should be held to be invalid, illegal
               or unenforceable by a court of competent jurisdiction because of
               time limitation or geographical area therein provided, such
               provisions shall nevertheless be effective and enforceable for
               such period of time and/or such geographical area as may be held
               to be reasonable by such court.  Any provision of this Agreement
               that is invalid, illegal or unenforceable in any jurisdiction
               shall, as to such jurisdiction, be ineffective to the extent of
               such invalidity, illegality or unenforceability without
               invalidating or rendering unenforceable the remaining provisions
               of this Agreement, any such invalidity, illegality or
               unenforceability shall not, of itself, affect the validity,
               legality or enforceability of such provision in any other
               jurisdiction.

               (b)  Notices.  In any case where any notice or other
               ------------                                        
               communications is to be given or made pursuant to any provision
               of this Agreement, such notice or communication shall be deemed
               to be delivered when actually received on the date specified in
               the return receipt for a notice or communication mail by
               registered or certified mail, postage prepaid, addressed as
               follows:

                    If to Employer:
                    -------------- 

                    Allin Corporation
                    400 Greentree Commons
                    381 Mansfield Avenue
                    Pittsburgh, PA 15220
                    Attn: Richard W. Talarico
                    Chief Executive Officer

                    with copies to:

                    Bryan D. Rosenberger, Esq.
                    Eckert Seamans Cherin & Mellott
                    600 Grant Street, 42nd Floor
                    Pittsburgh, PA 15219

          If to Employee:
          -------------- 

                    Timothy P. O'Shea
                    9054 Wood View Drive
                    Pittsburgh, PA  15237
 
or such other address or addresses as any party may specify by notice to the
other party given as herein provided.
                                                               Page Exh. 10.20-E
<PAGE>
 
               (c)  Headings.  The headings in this Agreement are inserted for
               -------------                                                  
               convenience and identification and in no way describe, interpret,
               define or limit the scope, extent or intent of this Agreement or
               any provision hereof.

               (d)  No Presumption on Interpretation.  Nothing herein shall be
               -------------------------------------                          
               construed more strongly against or more favorably toward either
               party by reason of either party having drafted this Agreement or
               any portion hereof.

               (e) Binding Effect.  This Agreement shall be binding upon, and
               --- --------------                                            
               inure to the benefit of, the parties hereto and their respective
               heirs, beneficiaries, executors, administrators, personal
               representatives, successors and permissible assigns.

               (f)  Integration.  This Agreement constitutes and contains the
               ----------------                                              
               entire Agreement and understanding between the parties with
               respect to the subject matter hereof and supersedes any all prior
               agreements, if any, understandings and negotiations relating
               thereto. No promise, understanding, representation, inducement,
               condition or warranty not set forth herein has been made or
               relied upon by any party hereto.

               (g)  Waivers: Modification.  This Agreement, or any provision
               --------------------------                                   
               hereof, may be amended, supplemented or modified only by a
               writing signed by both parties and may be waived only by a
               writing signed by the party to be bound thereby.  A written
               waiver of any provision shall be valid only in the instance for
               which given and shall not be deemed to be a continuing waiver or
               construed as a waiver of any other provisions.

               (h)  Governing Law.  This Agreement shall be construed in
               ------------------                                       
               accordance with and governed in all respects by the laws of the
               Commonwealth of Pennsylvania (without giving effect to the
               conflicts of laws provisions thereof).

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


WITNESS:                           ALLIN CORPORATION


/s/ Dean C. Praskach                /s/ Richard W. Talarico
---------------------------------   ---------------------------------
                                    Name Printed: Richard W. Talarico
                                    Title: Chairman & CEO


WITNESS:                            EMPLOYEE


/s/ Denise Smith                     /s/ Timothy P. O'Shea
---------------------------------   ---------------------------------

                                                               Page Exh. 10.20-F