<PAGE>
                                                                    Exhibit 10.9

                             EMPLOYMENT AGREEMENT
                             --------------------


  AGREEMENT made, effective as of September 1, 1996, by and between NORTHSTAR
HEALTH SERVICES, INC., a Delaware Corporation, with a place of business at 665
Philadelphia Street, Indiana, Pennsylvania, 15701, hereinafter referred to as
"Company", and ED BANOS, of 238-A Lakeview Drive, Jeannette, Pennsylvania,
15644, hereinafter referred to as "Employee".

                                   RECITALS

  The parties recite and declare:

  A.   Company desires to hire Employee because of Employee's vast business
experience.

  B.   Employee desires to be employed by the Company in the executive capacity
described below.


  For the reasons set forth above, and in consideration of the mutual covenants
and promises of the parties set forth in this Agreement, Company and Employee
agree as follows:

  1.    Position and Responsibilities.
        -----------------------------

        1.1.  Employee shall serve as President of White Oak Diagnostic Systems
Holdings, Inc., a Pennsylvania Company and subsidiary of the Company, and in
such position Employee will exercise such executive authority, duties, powers
and responsibilities as customarily attend such position in the Company. A job
description is attached hereto and made a part hereof.

        1.2.  Employee will, to the best of Employee's knowledge, skill and
ability, devote Employee's time and best efforts to the performance of
Employee's duties hereunder and the business and affairs of the Company.
Employee agrees to perform such executive duties as may be assigned to Employee
from time to time by the Company's Board of Directors or any committee of the
Board of Directors.

        1.3.  Employee will duly, punctually, competently and faithfully perform
and discharge Employee's duties in accordance with all applicable laws and all
policies, rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.

  2.    Term of Employment.
        ------------------

        2.1.  The initial term of this Agreement shall be for a period of two
(2) years commencing on September 1, 1996.
<PAGE>

Thereafter, this Agreement shall be automatically renewed on the anniversary
date of the commencement of the initial two (2) year term of this Agreement for
successive periods of one (1) year, unless Employee or the Company shall give
the other party, prior to such anniversary date, not less than sixty (60) days
prior written notice of non-renewal.  If the Company is sold, merged or
restructured eliminating this position, this Contract will be held binding until
the end of the stated contract period.

        2.2.  The Company may at any time terminate Employee's employment
hereunder for "Cause." In such event, the Company shall give Employee prompt
written notice specifying in reasonable detail the basis for such termination.
For purposes of this Agreement, "Cause" shall mean any of the following by
Employee: (i) material breach of any material provision of this Agreement, which
breach Employee shall have failed to cure within ten (10) days after Employee's
receipt from the Company specifying the specific nature of Employee's breach;
(ii) misconduct or neglect by Employee that is materially inimical to the best
interests, monetary or otherwise, of the company; and (iii) conviction of a
felony or any crime involving moral turpitude or fraud.  In the event of
Employee's termination for "Cause," the Company shall pay Employee any accrued
salary and benefits due Employee as of such date, less applicable taxes and
other required withholdings and any amounts Employee may owe to the Company.

  3.    Compensations.  Employee shall receive the compensation and
        -------------
benefits set forth on Exhibit "A", attached hereto and made a part hereof
("Compensation"), for all services to be rendered by Employee hereunder.

  4.    Other Activities During Employment.  Employee acknowledges and
        -----------------------------------
agrees that Employee may serve on boards of directors and hold other leadership
positions in non-profit organizations unless the objectives and requirements of
such positions are determined by the Board of Directors of Company to be
inconsistent with the performance of Employee's duties.  Employee also
acknowledges and agrees that the approval of the Board of Directors of Company
shall be required before Employee accepts or serves as a director, officer or
employee of any other for profit corporation during the term of this Agreement.

  5.    Illness, Incapacity and Death.
        -----------------------------

        (a) If, during the term of this Agreement, Employee shall be prevented
from performing Employee's duties by reason of illness or physical or mental
disability (hereinafter referred to collectively as "incapacity") for a
continuous period greater than one hundred twenty (120) days in any twelve (12)
month period, the Company may terminate Employee's employment hereunder by
giving written notice thereof to Employee, effective on the date set forth in
the notice (which date shall be not less than fifteen (15) business days after
the notice is given), and the Company
<PAGE>

shall pay Employee any accrued salary and benefits due to Employee as of such
date, less applicable taxes and other required withholdings and any amounts
Employee owes the Company.

        (b) For purposes of this Agreement, a continuous period of incapacity
shall not be deemed interrupted until Employee returns to substantially full
time work for a period of at least thirty (30) consecutive business days.

        (c) In the event of Employee's death during the term of this Agreement,
employment hereunder shall terminate on the date of Employee's death, and the
Company shall pay Employee's estate any accrued salary and benefits due to
Employee as of such date, less applicable taxes and other required withholdings
and any amounts Employee owes the Company. All vested stock options will be
transferred to wife or other beneficiary.

  6.    Former Employers.  Employee represents and warrants that Employee's
        ----------------
employment by the Company will not conflict with and will not be constrained by
any prior or current employment consulting agreement or relationship whether
oral or written.  Employee represents and warrants that Employee does not
possess confidential information arising out of any such employment, consulting
agreement or relationship which, in Employee's best judgment, would be utilized
in connection with Employee's employment by the Company.

  7.    Confidentiality.  Employee agrees to keep confidential, except as the
        ---------------
Company may otherwise consent in writing, and, except for the Company's benefit,
not to disclose or make any use of at any time, either during or subsequent to
Employee's employment, any trade secrets, confidential information, knowledge,
data, or other information of the Company relating to services, treatment
procedures, processes, know-how, designs, marketing data, test data, customer
lists, referral services, business plans, marketing plans and strategies,
pricing strategies, or other subject matter pertaining to any business of the
Company, or any of its affiliates, which Employee may produce, obtain, or
otherwise acquire during the term of this Agreement, except as herein
provided.  Employee further agrees not to deliver, reproduce or in any way
allow any such trade secrets, confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company. In the event Employee's employment with the
Company terminates for any reason whatsoever, Employee agrees to promptly
surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data which Employee may obtain or produce during the
term of this Agreement, and Employee will not take with Employee any summaries,
outlines or descriptions of any confidential information, knowledge or data of
the Company which Employee may produce or obtain during the term of this
Agreement.
<PAGE>

  8.    Non-Competition.
        ---------------

        8.1. During the term of Employee's employment hereunder, and for a
period equal to the greater of:

             (a) two (2) years after the termination of Employee's employment
with the Company, including without limitation, termination by the Company for
Cause or without Cause hereunder, or

             (b) any period under which Employee receives compensation from the
Company under Exhibit "A" hereto, absent the Company's prior written approval,
Employee will not engage, directly or indirectly, whether as principal or as
agent, officer, director, employee, consultant, shareholder, or otherwise,
alone or in association with any other person, corporation or other entity, in
any Competing Business.  For purposes of this Agreement, the term "Competing
Business" shall mean: any person, corporation or other entity which solicits,
trades with, advises, calls upon or otherwise does, or attempts to do, directly
or indirectly, business with any patients, referral sources, customers or
accounts of the Company, its successors, assigns or affiliates, that have done
business with the Company at any time or from time to time during the period of
Employee's employment hereunder.

        8.2. Employee agrees that during Employee's employment with the
Company Employee shall not, directly or indirectly, solicit the trade of, or
trade with, any patient, referral source, customer, prospective customer,
supplier, or prospective supplier of the Company for any business purpose other
than for the benefit of the Company.  Employee further agrees that for two (2)
years following termination of Employee's employment with the Company, including
without limitation, termination by the Company for Cause or without Cause,
Employee shall not, directly or indirectly, solicit the trade of, or trade with,
any patients, referral sources, customers or suppliers, or prospective customers
or suppliers, of the Company.

        8.3. Employee agrees that, except as expressly provided in Exhibit
"A" hereto, during Employee's employment with the Company and for two (2) years
following termination of Employee's employment with the Company, including
without limitation, termination by the Company for Cause or without Cause,
Employee shall not, directly or indirectly, solicit or induce, or attempt to
solicit or induce, any employee of the Company to leave the Company for any
reason whatsoever or hire any employee of the Company.

        8.4. Employee represents that Employee's experience and capabilities
are such that the provisions of this Agreement will not prevent Employee from
earning a livelihood and Employee acknowledges that it would cause the Company
serious and irreparable injury and cost if Employee was to use Employee's
<PAGE>

ability and knowledge in competition with the Company or to otherwise breach the
obligations contained in this Agreement.

  9.    Remedies.  In the event of a breach by Employee of the terms of this
        --------
Agreement, the Company shall be entitled, if it shall so elect, to institute
legal proceedings to obtain damages for any such breach, or to enforce the
specific performance of this Agreement by Employee and to enjoin Employee from
any further violation of this Agreement and to exercise such remedies
cumulatively or inconjunction with all other rights and remedies provided by
law.  Employee acknowledges, however, that the remedies at law for any breach
by Employee of the provisions of this Agreement may be inadequate and that the
Company shall be entitled to injunctive relief against Employee in the event of
any breach.

  10.   Assignment.  This Agreement shall be binding upon and inure to the
        ----------
benefit of the successors and assigns of the Company, and the Company shall be
obligated to require any successor to expressly acknowledge and assume its
obligations hereunder.  This Agreement shall inure to the extent provided
hereunder to the benefit of, and be enforceable by, Employee or Employee's legal
representatives, executors, administrators, successors and heirs.  Employee may
not assign any of Employee's rights or delegate any of Employee's duties,
responsibilities, obligations or positions hereunder to any person, and any such
purported delegation by Employee shall be void and of no force and effect.

  11.   Severability.  The Company and Employee acknowledge and agree that in
        ------------
the event any one or more of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect the other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.

  12.   Notices.  Any notice given by the Company hereunder shall be by personal
        -------
delivery or registered or certified mail, return receipt requested, addressed to
Employee at Employee's address of record with the Company.  Any notice which
Employee is required or may desire to deliver to the Company may be given by
Employee by personal delivery or by registered or certified mail, return receipt
requested, addressed to the Company at its principal office.  The date of
personal delivery or five (5) business days after the date of mailing any
notice shall be deemed to be the date of delivery thereof.

  13.   Waivers.  If either party should waive any breach of any provision of
        -------
this Agreement, such waiver shall not operate or be construed as a waiver of any
subsequent breach of any provision of this Agreement.

  14.   Complete Agreement; Amendments.  This Agreement, including Exhibit "A"
        ------------------------------
hereto, is the entire agreement of the
<PAGE>

parties with respect to the subject matter hereof, superseding all previous oral
or written communications, representations, understandings or agreements with
the Company or any officer or representative thereof.  Any amendment to this
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.

  15.   Headings.  The headings of the sections hereof are inserted for
        --------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.

  16.   Counterparts.  This Agreement may be signed in counterparts, each of
        ------------
which shall be deemed an original and both of which shall together constitute
one agreement.

  17.   Governing Law.  This Agreement shall be governed by and construed in
        -------------
accordance with the laws of the Commonwealth of Pennsylvania.

  IN WITNESS WHEREOF, each party to this Agreement has caused it to be executed
at Indiana, Pennsylvania, on the date indicated below.

                                      COMPANY:

                                      NORTHSTAR HEALTH SERVICES, INC.


ATTEST:                               BY: /s/ David D. Watson
                                         ------------------------------
/s/ ?????????????????????                David D. Watson, President
------------------------------
                     Secretary

(SEAL)

WITNESS:                              EMPLOYEE:

/s/ ???????????????????????              /s/ Ed Banos
------------------------------           ------------------------------ (SEAL)
                                         ED BANOS
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                                  EXHIBIT "A"
                                  -----------

                  EMPLOYMENT TERM, COMPENSATION AND BENEFITS
                  ------------------------------------------
                                  OF ED BANOS
                                  -----------

1.      Compensation.
        ------------

        Employee's annual base salary will be Seventy-six Thousand and No/100
        ($76,000.00) Dollars paid bi-weekly, less appropriate deductions in
        accordance with the Company's salary payment policy. Anniversary
        evaluation and raise appropriately increased in conjunction with other
        senior management.

2.      Stock Options.
        -------------

        Employee shall be eligible to participate in the Company's 1992 Stock
        Option Plan or any other stock bonus or stock option plan authorized by
        the Company for its employees, officers and consultants. On the
        Effective Date, Employee shall be granted, under the 1992 Stock Option
        Plan, stock options for 50,000 shares of the Company's Common Stock in
        connection with the Employee's execution of this Agreement. Such options
        shall have an exercise price equal to the fair market value (as defined
        in the 1992 Stock Option Plan) as of the Effective Date. Options
        covering 25,000 shares shall vest and become exercisable upon Employee's
        commencement of Employee's Employment Agreement with the Company;
        options covering 25,000 shares shall vest and become exercisable twelve
        (12) months after the Employee's commencement of this Employment
        Agreement. If employee's position is terminated or eliminated due to,
        but not limited to, merger, acquisition or restructuring, the 25,000
        unvested options become fully vested on date of termination at price set
        by date of hire, September 1, 1996, and exercisable for ten (10) years
        from date of grant. Such options shall be exercisable for ten (10) years
        from the date of grant; provided, however, Employee shall forfeit all
        non-vested options upon termination of employment with the Company for
        any reason and as otherwise provided in the 1992 Stock Option Plan. In
        connection with the granting of the aforementioned options, Employee
        hereby acknowledges prior receipt of the Company's Form 10-KSB for the
        fiscal year ending December 31, 1994, Proxy Statement dated May 8, 1995,
        Form 10-QSB for the quarter ended June 30, 1995, 1992 Stock option Plan
        and related stock option plan disclosure documents. Employee also
        acknowledges that Employee has had ample opportunity to review each of
        the aforementioned documents prior to the execution of this Agreement.
<PAGE>

3.      Relocation Expenses.
        -------------------

        The Company will provide up to One Thousand Five Hundred and No/100
        ($1,500.00) Dollars in moving expenses to move to Indiana, Pennsylvania.

4.      Benefits.
        --------

        All standard benefits will be governed under Keystone Rehabilitation
        Systems existing Employee Benefit Plan. The benefits are attached and
        are the standard benefits of Northstar Health Services, Inc. and
        Keystone Rehabilitation Systems, Inc.

5.      Retirement Plan.
        ---------------

        Employee will be eligible to participate in the Company's 401(k) Plan
        in accordance with its terms. The Company will provide a matching
        contribution in accordance with its matching contribution plan for all
        employees, with such matching contribution not to exceed fifteen (15%)
        percent of Employee's income as permitted by the Internal Revenue
        Service.

6.      Automobile.
        ----------

        Employee shall be entitled to receive a $400.00 per month automobile
        allowance during the term of this Agreement.

7.      Management Incentive Program (MIP).
        -----------------------------------

        Northstar Health Services, Inc. agrees to designate to employee a
        minimum of three (3%) percent of the EBITDA profits Employee's division
        earns which are to be given to Employee's management staff, employees
        and himself on a solely discretionary basis. Under no circumstance is
        Employee to give himself more than fifty (50%) percent of the MIP. By
        act of the Board of Directors, the percentage of MIP may be increased,
        but a minimum of three (3%) percent is the base amount. Payment is to be
        made after year-end audits of the division are complete and will be
        paid through payroll no later than March 30, 1996.

8.      Press Release.
        -------------

        A press release is expected and to be released involving Employee's
        division on the designation of his position and is to be released to all
        publication agencies, including but not limited to, WSJ, Pittsburgh Post
        Gazette, Business Times, Tribune Review, Modern Healthcare, Hospital
        News and other appropriate publication agencies.