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                                                                    EXHIBIT 10.3
                                                                                
                              EMPLOYMENT AGREEMENT
                              --------------------
                                        
   Executive Vice President of Finance and Administration and Chief Financial
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                                    Officer
                                    -------
                                        
  THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 27th day of
April, 1999, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation (the
"Company") and PETER J. RUSSO (the "Employee").
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                                    RECITALS
                                    --------

  A.  The Company desires to retain Employee to provide the services hereinafter
set forth.

  B.  Employee is willing to provide such services to the Company on the terms
and conditions hereinafter set forth.

                                   AGREEMENT
                                   ---------

  In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:

  1.  Employment and Term.  The Company agrees to employ the Employee and the
      -------------------                                                    
Employee agrees to work for the Company, effective as of the date hereof,
subject to the terms and conditions below.  This Agreement shall be for a term
of twelve (12) months after the date hereof, provided, that the term of this
Agreement shall automatically extend for one additional month at the end of each
month during the term hereof unless either party provides thirty (30) days prior
written notice to the other of its desire not to automatically extend the term
of this Agreement.

  2.  Compensation; Benefits.  Subject to the terms and conditions of this
      ----------------------                                              
Agreement, the Company shall pay to the Employee a base salary as set forth on
                                                                              
Schedule A, attached hereto and made a part hereof, payable in accordance with
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the Company's regular payroll policies.  In addition to this base salary, the
Employee shall be entitled to the benefits and bonuses described on Schedule A,
                                                                    ---------- 
subject to the terms and conditions described therein.  In addition, the
Employee shall be entitled to receive such other benefits including, but not
limited to, holidays and sick leave, as the Company generally provides to its
employees holding similar positions as that of the Employee.  Notwithstanding
the foregoing, the Company reserves the right to adopt, amend or discontinue any
employee benefit plan or policy in accordance with then-applicable law.

  3.  Title; Duties.  The Employee shall be employed as Executive Vice President
      -------------                                                             
of Finance and Administration and Chief Financial Officer.  The Employee shall
also serve as the Company's Treasurer and Secretary.  The Employee shall
diligently and conscientiously devote his full time and attention and his best
efforts to discharge the duties assigned to her by the Company.  

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The Employee shall perform such duties as may be assigned to him from time to
time by the Company.

  4.  Right to Contract; Conflict of Interest.  The Employee hereby represents
      ---------------------------------------                                 
and warrants to the Company that (i) he has full right and authority to enter
into this Agreement and to perform his obligations hereunder, and (ii) the
execution and delivery of this Agreement by the Employee and the performance of
the Employee's obligations hereunder will not conflict with or breach any
agreement, order or decree to which the Employee is a party or by which he is
bound.  During the term of this Agreement, the Employee shall not directly or
indirectly consult, advise, be retained or employed by, or in any manner perform
any service with any other business or entity in any line of business,
regardless of whether such line of business is competitive with the Company's
business, without first obtaining consent in writing from the Company.

  5.  Transfer by Company.  If at any time during the term of this Agreement,
      -------------------                                                    
the Company transfers the Employee with his consent to another location, the
Company will reimburse the Employee for all reasonable moving expenses incurred
as a result of such transfer.  In the event that the  Company terminates this
Agreement with cause pursuant to Section 6 hereby or the Employee terminates
                                 ---------                                  
this Agreement without cause pursuant to Section 8 hereof within one year after
                                         ---------                             
any such transfer, the Employee shall refund to the Company all amounts paid to
him by the Company as moving expenses (including temporary housing and
incidental expenses) pursuant to this Section 5.  The Employee agrees that any
                                      ---------                               
amounts owing to the Company under this Section 5 may be deducted from any
                                        ---------                         
salary, bonuses or other amounts owed to him by the Company, consistent with
applicable law.

  6.  Termination by the Company.
      -------------------------- 

  (a)  The Company shall have the right to terminate this Agreement with or
without cause at any time during the term of this Agreement by giving written
notice to the Employee.  The termination shall become effective on the date
specified in the notice, which termination date shall not be a date prior to the
date 5 days following the date of the notice of termination itself.  In the
event that this Agreement is terminated by the Company for cause, the Company
shall pay the Employee the base salary due him under this Agreement through the
day on which such termination is effective.  In the event that this Agreement is
terminated by the Company without cause, the Company shall pay to the Employee
compensation equal to twelve (12) months of the Employee's base salary plus 100%
of the Employee's maximum incentive compensation payable hereunder.

  (b)  For purposes of this Section 6, "cause" shall mean (i) a material breach
                            ---------   -----                                  
by the Employee of any covenant or condition hereunder or a material failure of
performance by the Employee under this Agreement; (ii) abandonment by the
Employee of his duties hereunder; (iii) the commission by the Employee of any
act or omission constituting gross negligence, dishonesty, fraud, immoral or
disreputable conduct which is, or in the reasonable opinion of the Company's
Board of Directors, is likely to be, harmful to the Company or its reputation;
(iv) conviction of, or a plea or nolo contendere by, the Employee of a violation
of any federal, state or local law, rule regulation or ordinance; (v) violation
by the Employee of the Company's 

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material policies as set forth in the Company's personnel handbook, if one has
been adopted, or announced by Company management from time to time, which
violation remains uncured thirty (30) days after written notice to the Employee
by the Company regarding such violation has been provided; (vi) violation of the
Company's drug and alcohol policy as set forth in the Company's personnel
handbook, if one has been adopted, or announced by Company management from time
to time; or (vii) the performance by the Employee of any act or omission
demonstrating an intentional or reckless disregard of the interests of the
Company.

  7.  Termination by Death or Disability of the Employee.
      -------------------------------------------------- 

  (a)  In the event of the Employee's death during the term of this Agreement,
all obligations of the parties hereunder shall terminate immediately, and the
Company shall pay to the Employee's legal representatives the base salary due
the Employee through the day on which his death shall have occurred.

  (b)  If the Employee is unable to perform his duties hereunder due to mental,
physical or other disability for a period of 90 consecutive business days, as
determined by the Company, or for 90 business days in any period of 12
consecutive months, this Agreement may be terminated by the Company, at its
option, by written notice to the Employee, effective on the termination date
specified in such notice, provided such termination date shall not be a date
prior to the date of the notice of termination itself.  In this case, the
Company will pay the Employee the base salary due him through the day on which
such termination is effective.

  8.  Termination by the Employee.
      --------------------------- 

  (a)  The Employee may terminate this Agreement at any time, with or without
cause, by giving 30 days written notice to the Company.  Any such termination,
if without cause, shall become effective on the date specified in such notice,
provided that the Company may elect to have such termination become effective on
a date after, but not more than 14 days after, the date of the notice.  If such
termination is with cause, it shall become effective on the date 30 days after
the date of such notice, provided the Company has failed to cure the cause
specified in the notice.  In the event that this Agreement is terminated by the
Employee without cause, the Employee shall be entitled to the base salary due
him through the day on which such termination becomes effective.  In the event
that this Agreement is terminated by the Employee with cause, the Company shall
pay to the Employee compensation equal to twelve (12) months of the Employee's
base salary plus 100% of the Employee's maximum incentive compensation payable
hereunder.

(b)  For purposes of this Section 8, "cause" shall mean (i) a material failure
                          ---------                                           
by the Company to perform its obligations under this Agreement, (ii) a material
reduction in the Employee's duties or responsibilities hereunder not consented
to by Employee or (iii) a relocation of more than fifty (50) miles from the
Company's principal executive offices not consented to by Employee.

  9.  Suspension.  In the event the Company has reasonable cause to believe that
      ----------                                                                
there exists cause for termination of this Agreement as defined in Section 6,
                                                                   --------- 
immediately upon written 

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notice to the Employee, the Company may but shall not be obligated to suspend
the Employee, with pay, for a period not to exceed four (4) weeks, either as a
disciplinary measure or in order to investigate the Company's belief that such
cause exists. No such suspension shall prevent the Company from thereafter
exercising its rights to terminate this Agreement in accordance with its terms.

  10.  Change of Control of the Company.  In the event of a Change of Control
       --------------------------------                                      
(as defined below) of the Company then, immediately following the consummation
of such Change of Control, the Company (or its successor) shall pay to the
Employee in a gross amount such that the net payments retained by the Employee
after payment of any tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended, with respect to such payment shall equal eighteen (18) months
of the Employee's base salary.  For purposes of this Section 10, a Change of
                                                     ----------             
Control shall mean any of the following:

        (a)  the merger or consolidation of the Company with or into another
unaffiliated entity, or the merger of another unaffiliated entity into the
Company or any subsidiary thereof with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the total voting power of all
securities generally entitled to vote in the election of directors, managers or
trustees of the entity surviving such merger or consolidation;

        (b)  the sale, lease or other transfer of all or substantially all of
the Company's assets to an unaffiliated person or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or the sale
or transfer of more than fifty-one percent (51%) of the Company's then
outstanding voting stock (other than in a restructuring transaction which
results in the continuation of the Company's business by an affiliated entity)
to such persons or group; or

        (c)  the adoption by the stockholders of the Company of a plan relating
to the liquidation or dissolution of the Company.

  11.  Non-competition and Non-Solicitation.
       ------------------------------------ 

  (a)  Non-competition.  The Employee agrees that, during his employment
       ---------------                                                  
hereunder, and until the later of (i) two (2) months after the effective date of
termination of this Agreement, (ii) the date on which the Employee's period of
compensated severance hereunder expires, or (iii) the date of entry by a court
of competent jurisdiction of a final judgment enforcing this covenant, he will
not, in any geographic area where the Company engages in its Business (as
defined below) or maintains sales or service representatives or employees:

        (A) compete with the Company, or any subsidiary or affiliate of the
Company;

        (B)  interfere with or disrupt, or attempt to interfere with or disrupt,
the relationship, contractual or otherwise, between the Company, or any
subsidiary or affiliate of the Company, and any customer, supplier or employee
of the Company, or any such subsidiary or affiliate;

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  (b)  Non-Solicitation.  The Employee agrees that, during his employment
       ----------------                                                  
hereunder, and for a period of two (2) years after the later of (i) the
effective date of termination of this Agreement, (ii) the date on which the
Employee's period of compensated severance hereunder expires, or (iii) the date
of entry by a court of competent jurisdiction of a final judgment enforcing this
covenant, he will not offer employment to any current employee of the Company or
solicit (directly or indirectly, either individually or in connection with any
employer or other business partner) any current employee of the Company to
accept employment elsewhere.

  (c)  The following terms, as used in this Section 11 shall have the meanings
                                            ----------                        
set forth below:

        (A)  The Company's "Business" means the development of enterprise-wide
                            --------                                          
software solutions for large scale applications.

        (B)  The term "compete" means to engage in competition, directly or 
                       -------                     
indirectly, individually or through a family member or other person acting on
the Employee's behalf, as an employee, officer, director, proprietor, partner or
stockholder or other security holder (other than of a corporation listed on a
national securities exchange or the securities of which are regularly traded in
the over-the-counter market, provided that the Employee at no time owns in
excess of 5% of the outstanding securities of such corporation entitled to vote
for the election of directors) of any firm, corporation or entity of any nature
whatsoever.

        (C)  The term "affiliate" means any person, firm or corporation, 
                       --------- 
directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with the Company.

  (d)  The Employee further acknowledges that this Section 11 is an independent
                                                   ----------                  
covenant within this Agreement, and that this covenant shall survive any
termination of Agreement and shall be treated as an independent covenant for the
purposes of enforcement.  With respect to this covenant, the Employee hereby
acknowledges receipt of Ten Dollars ($10.00) and other good and valuable
consideration stated herein including the consideration of his continued
employment by the Company.

  (e)  The Employee shall, during the term of this Agreement and thereafter,
notify any prospective employer of the terms and conditions of this Agreement
regarding confidentiality, non-disclosure and non-competition.

  12.  Confidentiality and Non-Disclosure.
       ---------------------------------- 

  (a)  The Employee shall hold in strict confidence and shall not, either during
the term of this Agreement or after the termination hereof, disclose, directly
or indirectly, to any third party, person, firm, corporation or other entity,
irrespective of whether such person or entity is a competitor of the Company or
is engaged in a business similar to that of the Company, any trade secrets or
other proprietary or confidential information of the Company or any subsidiary

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or affiliate (as defined in Section 11) of the Company obtained by the Employee
                            ----------                                         
from or through his employment hereunder.  The Employee hereby acknowledges and
agrees that all proprietary information referred to in this Section 12 shall be
                                                            ----------         
deemed trade secrets of the Company and of its subsidiaries and affiliates, as
defined in Section 11, and that the Employee shall take such steps, undertake
           ----------                                                        
such actions and refrain from taking such other actions, as mandated by the
provisions hereof and by the provisions of the Virginia Uniform Trade Secret
Act.  Employee further acknowledges that the Company's products and titles
consist of copyrighted material, and Employee shall exercise his best efforts to
prevent the use of such copyrighted material by any person or entity which has
not prior thereto been authorized to use such information by the Company.

  (b)  The Employee further hereby agrees and acknowledges that any disclosure
of any proprietary information prohibited herein, or any breach of the
provisions of Sections 4 or 11 of this Agreement, may result in irreparable
              ----------    --                                             
injury and damage to the Company which will not be adequately compensable in
monetary damages, that the Company will have no adequate remedy at law therefor,
and that the Company may obtain such preliminary, temporary or permanent
mandatory or restraining injunctions, orders or decrees as may be necessary to
protect the company against, or on account of, any breach by the Employee of the
provisions contained in Sections 4, 11 or 12.  The Employee shall reimburse the
                        ----------  --    --                                   
reasonable legal fees and other costs incurred by the Company in enforcing the
provisions of Sections 4, 11 and 12 of this Agreement.
              ----------  --     --                   

  (c)  The Employee further agrees that, upon termination of this Agreement,
whether voluntary or involuntary or with or without cause, the Employee shall
notify any new employer, partner, associate or any other firm or corporation
with whom the Employee shall become associated in any capacity whatsoever of the
provisions of this Section 12, and that the Company may give such notice to such
                   ----------                                                   
firm, corporation or other person.

  13.  Assignment and Disclosure of Inventions.
       --------------------------------------- 

  (a)  From and after the date the Employee first became employed with the
Company, the Employee hereby agrees to promptly disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works, and trade secrets ("Inventions"), whether or not
                                           ----------                  
patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by the Employee, either alone
or jointly with others, during the period of the Employee's employment, whether
or not in the course of the Employee's employment.

  (b)  The Employee hereby acknowledges that copyrightable works prepared by the
Employee within the scope of the Employee's employment are "works for hire"
under the Copyright Act and that the Company will be considered the author
thereof.  The Employee hereby agrees that all Inventions that (a) are developed
using equipment, supplies, facilities or trade secrets of the Company, (b)
result from work performed by the Employee for the Company, or (c) relate to the
Company's business or current or anticipated research and development, will be
the sole and exclusive property of the Company and are hereby assigned by the
Employee to the Company.

                                       6
<PAGE>
 
  14.  Severability.  The Company and the Employee recognize that the laws and
       ------------                                                           
public policies of the Commonwealth of Virginia are subject to varying
interpretations and change.  It is the intention of the Company and of the
Employee that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of the Commonwealth of
Virginia, but that the unenforceability (to the modification to conform to such
laws or public policies) of any provision or provisions hereof shall not render
unenforceable, or impair, the remainder of this Agreement.  Accordingly, if any
provisions of this Agreement shall be determined to be invalid or unenforceable,
either in whole or in part, this Agreement shall be deemed amended to delete or
modify, as necessary, the offending provision or provisions and to alter the
balance of this Agreement in order to render it valid and enforceable.

  15.  Assignment.  Neither the rights nor obligations under this Agreement may
       ----------                                                              
be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by merger,
reorganization or otherwise, or any purchaser of all or substantially all of the
assets of the Company.

  16.  Notices.  Any notice expressly provided for under this Agreement shall be
       -------                                                                  
in writing, shall be given either manually or by mail and shall be deemed
sufficiently given when actually received by the party to be notified or when
mailed, if mailed by certified or registered mail, postage prepaid, addressed to
such party at their addresses as set forth below.  Either party may, by notice
to the other party, given in the manner provided for herein, change their
address for receiving such notices.

           (a)  If to the Company, to
               
                Template Software, Inc.
                45365 Vintage Park Plaza
                Dulles, Virginia  20166
                Attn:  Chief Executive Officer
               
                with a copy to :

                Cooley Godward LLP
                2002 Edmund Halley Drive, Suite 300
                Reston, Virginia  20191
                Attn:  Joseph W. Conroy, Esquire

           (b)  If to the Employee, to
               
                Peter J. Russo
                111 Bringham Street
                Unit 27D
                Hudson, Massachusetts 01749

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<PAGE>
 
  17.  Governing Law.  This Agreement shall be executed, construed and performed
       -------------                                                            
in accordance with the laws of the Commonwealth of Virginia without reference to
conflict of laws principles.

  18.  Headings.  The section headings contained in this Agreement are for
       --------                                                           
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

  19.  Entire Agreement; Amendments.  This Agreement constitutes and embodies
       ----------------------------                                          
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter.  No covenant or condition
not expressed in this Agreement shall affect or be effective to interpret,
change or restrict this Agreement.  In the event of a conflict or inconsistency
between the terms of this Agreement and the Company's policies regarding
employees, the terms of this Agreement shall supersede the conflicting or
inconsistent Company policies.  No change, termination or attempted waiver of
any of the provisions of this Agreement shall be binding unless in writing
signed by the Employee and on behalf of the Company by an officer thereunto duly
authorized by the Company's Board of Directors.  No modification, waiver,
termination, rescission, discharge or cancellation of this Agreement shall
affect the right of any party to enforce any other provision or to exercise any
right or remedy in the event of any other default.

                            [SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.


                          COMPANY:
                          ------- 

                          TEMPLATE SOFTWARE, INC.


                          By:  ___/s/ Joseph M. Fox_____________
                          Name:  Joseph M. Fox
                          Title:  Chairman of the Board



                         
                          EMPLOYEE:
                          -------- 



                          _____/s/ Peter J. Russo _______________
                          Peter J. Russo
                         

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                                   Schedule A
                                   ----------
                                        

1.  Base salary:  $200,000 annually (payable semi-monthly in equal $16,666.66
    -----------                                                              
installments)

2.   Incentive compensation:  Up to $100,000 annually, to be earned under terms
     ----------------------                                                    
     and conditions to be provided within sixty (60) days after the date hereof.
     The incentive compensation for 1999 will be pro-rated based on the
     Employee's start date.

3.      Vacation:  4 weeks per year.
        --------                    

4.        Stock options:  On the date of this Agreement, the Employee shall be
          -------------                                                       
          granted an incentive stock option to acquire 200,000 shares of the
          Company's Common Stock at an exercise price per share equal to the
          closing price of the Company's Common Stock on the Nasdaq National
          Market on the date of this Agreement.  Such stock options shall be
          exercisable as follows: (i) 25% exercisable as of the date of the
          Agreement and (ii) 25% exercisable on each annual anniversary hereof.
          Notwithstanding the foregoing, upon termination of this Agreement by
          the Company without cause (as defined in Section 6), all unexercisable
                                                   ---------                    
          stock options shall become immediately exercisable for twelve (12)
          months following the date of such termination.  Furthermore, upon a
          Change of Control of the Company (as defined in Section 10), all
                                                          ----------      
          unexercisable stock options shall become immediately exercisable for
          twelve (12) months following the date of the consummation of such
          Change of Control.

          The grant of stock options to the Employee hereunder will be evidenced
          by a stock option agreement, to be prepared by the Company, and will
          be subject to the terms and conditions of the Company's 1996 Stock
          Incentive Plan.

5.        Relocation:  The Employee will be eligible to receive a relocation
          ----------                                                        
          reimbursement of actual expenses up to $70,000, subject to applicable
          federal, state and local employment and withholding taxes, for which
          Employee will be responsible.  Should the Employee terminate this
          Agreement without cause (as defined in Section 8) prior to completion
          of one year of service, the Employee will be required to reimburse the
          Company for all such expenses.

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