<PAGE>

                                                                   EXHIBIT 10.24

                             EMPLOYMENT AGREEMENT

     THIS AGREEMENT is entered into as of July 18, 1997 by and between DENNIS P.
SCHMULAND, M.D. (the "Employee") and HEALTHKNOWLEDGE CORPORATION, a Delaware
corporation (the "Company").

          1.    Term of Employment.
                -------------------

          (a)   Effective Date. This Agreement shall be effective from July 18,
                --------------
1997 (the "Effective Date").

          (b)   Term. The Company agrees to continue the Employee's Employment,
                ----
and the Employee agrees to remain in Employment with the Company, from the
Effective Date until the earlier of:

          (i)   July 18, 2001; or

          (ii)  The date when the Employee's Employment terminates pursuant to
     Subsections 1 (d), (e), (f) or (g) below.

          (c)   Renewal. In the event that neither the Company nor Employee give
                -------
notice to the other party of an intention to terminate this Agreement at least
30 days prior to the date set forth in clause (i) of Subsection 1(b) hereof,
this Agreement shall be automatically renewed for a one-year term. This
Agreement shall thereafter be automatically renewed far successive one-year
terms in the absence of 30-day notice by either party to the contrary.

          (d)   Early Termination. Subject to Section 8, the Company may
                -----------------
terminate the Employee's Employment without Cause by giving the Employee 30
days' advance notice in writing. The Employee may terminate his Employment
without Good Reason by giving the Company 30 days' advance notice in writing.
The Employee's Employment shall terminate automatically in the event of his
death. Any waiver of notice shall be valid only if it is made in writing and
expressly refers to the applicable notice requirement of this Section 1.

          (e)   Cause. The Company may terminate the Employee's Employment at
                -----
any time upon reasonable notice for Cause. For all purposes under this
Agreement, "Cause" shall mean (i) a knowing failure by the Employee to comply
with the material policies of the Company, (ii) gross negligence of Employee
which results in a materially adverse impact to the Company, (iii) a breach of a
fiduciary duty to the Company, (iv) conviction of, or a plea of "guilty" or "no
contest" to, a felony or (v) demonstrable and repeated (x) failure to follow the
directions of the Company's Board of Directors (the

                                       1
<PAGE>

"Board") or (y) failure to perform his obligations, duties or responsibilities
hereunder, other than a failure resulting from the Employee's complete or
partial incapacity due to physical or mental illness or impairment.

          (f)   Good Reason. Employee may terminate his Employment at any time
                -----------
upon reasonable notice for Good Reason. For all purposes under this Agreement,
"Good Reason" shall mean (i) a substantial reduction in Employee's position or
authority at the Company, (ii) a more than 25 percent reduction in Base
Compensation or benefits, (iii) a failure to pay compensation payable hereunder
or (iv) the filing by the Company of bankruptcy proceedings.

          (g)   Disability. The Company may terminate the Employee's active
                ----------
Employment due to Disability by giving the Employee 30 days' advance notice in
writing. For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has performed substantially none of his
duties under this Agreement for a period of not less than three consecutive
months as the result of his incapacity due to physical or mental illness. In the
event that the Employee resumes the performance of substantially all of his
duties hereunder before the termination of his active Employment under this
Subsection 1(g) becomes effective, the notice of termination shall automatically
be deemed to have been revoked.

          (h)   Rights Upon Termination. Except as expressly provided in Section
                -----------------------
8, upon the termination of the Employee's Employment pursuant to this Section 1,
the Employee shall only be entitled to the compensation, benefits and
reimbursements described in Sections 3, 4, 5 and 6 for the period preceding the
effective date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Employee.

          2.    Duties and Scope of Employment.
                ------------------------------

          (a)   Position. The Company agrees to employ the Employee as its
                --------
Chairman of the Board and Chief Medical Officer for the term of his Employment
under this Agreement ("Employment"). The Company agrees to use its best efforts
to cause the Employee to be nominated for election as a member of the Company's
Board throughout the term of his Employment.

          (b)   Obligations. During the term of his Employment, the Employee
                -----------
shall devote his full business efforts and time to the Company and its
subsidiaries (if any). He shall not render services to any other person or
entity without the express prior approval of the Board. Such approval shall not
be withheld unreasonably, provided that service on the boards of directors of
other corporations will be approved only if (i) such other corporations are not
engaged in activities that are competitive, or potentially competitive, with the
Company, (ii) such other corporations are of a quality and stature commensurate,
in the sole judgment of the Board, with the

                                       2
<PAGE>

Employee's position under this Agreement and with the Company's objectives and
(iii) the Employee will not be serving on the boards of directors of more than
three corporations (other than the Company).

          3.    Compensation.
                -------------

          (a)   Salary. During the term of his Employment, the Company agrees to
                ------
pay the Employee as compensation for his services a base salary at the annual
rate of $156,000 or at such higher rate as the Company may determine from time
to time. Such salary shall be payable in accordance with the Company's standard
payroll procedures. (The annual compensation specified in this Section 3,
together with any increases in such compensation that the Company may grant from
time to time, is referred to in this Agreement as "Base Compensation.")

          (b)   Incentive Plan. Employee shall be eligible to receive, at the
                --------------
discretion of the Board, grants of stock options under incentive plans adopted
by the Board and approved by the Company's stockholders.

          (c)   Bonus. Employee shall be eligible to receive an annual bonus of
                -----
up to 60 percent of Base Compensation, such amount to be determined by the Board
and subject to the achievement of objectives to be determined by the Board no
later than 30 days prior to the commencement of each new Employment year.

          (d)   Closing Bonus. Employee hereby acknowledges receipt of a $75,000
                -------------
bonus paid by the Company following the closing of the sale of the Company's
Series A Preferred Stock.

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

          (a)   Benefit Plans. During the term of his Employment, Employee shall
                -------------
be eligible to participate in the Employee benefit plans maintained by the
Company, subject in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan.

          (b)   Disability Insurance. The Company will provide to Employee
                --------------------
additional disability insurance coverage such that 75 percent of Base
Compensation is covered.

          (c)   Vacation. Employee will earn four weeks of vacation for each
                --------
full year of Employment. The maximum vacation Employee can accrue in any year is
four weeks. If Employee has not used his four weeks of vacation by the end of
the Employment year, he will not lose any accrued vacation, but vacation will
cease to accrue until any accrued vacation is reduced.

                                       3
<PAGE>

          5.    Business Expenses.
                -----------------

          During the term of his Employment, the Employee shall be authorized to
incur necessary and reasonable travel, entertainment and other business expenses
in connection with his duties hereunder. The Company shall reimburse the
Employee for such expenses upon presentation of an itemized account and
appropriate supporting documentation, all in accordance with the Company's
generally applicable policies. Employee shall also be entitled to reimbursement
of professional and educational expenses as approved by the Board.

          6.    Automobile Allowance. The Company shall pay to Employee $500 per
                --------------------
month as an automobile allowance. Such payments will terminate on the first
anniversary of the Effective Date.

          7.    Stock Vesting.
                -------------

          (a)   Acceleration. Employee and the Company are parties to that
                ------------
certain Stock Restriction Agreement dated as of July 17, 1997 (the "Stock
Restriction Agreement"), which provides for a right of repurchase in favor of
the Company with respect to certain shares of the Company's Subordinated
Convertible Preferred Stock owned by Employee, which right of repurchase lapses
ratably on a monthly basis over a four-year period. The Company agrees that, in
the event that (A) the Employee's Employment terminates because of death or
total and permanent Disability or (B) the Company is subject to a Change in
Control, such right of repurchase shall lapse as to all then remaining unvested
shares.

          (b)   Definition of Change in Control. For all purposes under this
                -------------------------------
Agreement, "Change in Control" shall mean a consolidation, merger or other
reorganization of the Company with or into another corporation or other entity
or person in which the Company shall not be the continuing or surviving entity
of such merger, consolidation or reorganization, or the sale of all or
substantially all of the Company's properties and assets to any other person, or
any transaction or series of related transactions by this corporation in which
an excess of 50 percent of this corporation's voting power is transferred,
unless the Company's stockholders of record immediately prior to such merger,
consolidation, reorganization, sale or transaction are holders of more than 50
percent of the voting equity securities of the surviving corporation.

          8.    Involuntary or Constructive Termination.
                ---------------------------------------

          (a)   Salary Continuation. Subject to Subsection 8(b) below, the
                -------------------
Company shall continue (i) to pay the Employee's Base Compensation (at the
annual rate then in effect) and (ii) to provide the benefits described in
Subsections 4(a) and 4(b) for 12 months following a termination of Employment
or, if such termination is prior to the first anniversary of the Effective Date,
for 24 months following such

                                       4
<PAGE>

termination, if:

          (i)   At any time during the term of this Agreement, the Company
     terminates the Employee's Employment without his consent for any reason
     other than Cause or Disability; or

          (ii)  During the term of this Agreement, the Employee voluntarily
     resigns his Employment for Good Reason.

The payments under this Subsection 8(a) shall cease in the event of the
Employee's death.

          (b)   Mitigation.  The payments under Subsection 8(a) above shall be
                ----------
reduced on a dollar-for-dollar basis by any other compensation earned by the
Employee for personal services performed as an employee or independent
contractor during the 12-month period or 24-month period, as the case may be,
following the termination of his Employment, including (without limitation)
deferred compensation. The Employee shall apply his best efforts to seek and
obtain other employment or consulting engagements, whether on a full- or part-
time basis, during such period in order to mitigate the Company's obligations
under Subsection 8(a) above. The Employee, at reasonable intervals, shall report
to the Company with respect to such efforts and any compensation earned during
such period.

          9.    Successors.
                ----------

          (a)   Company's Successors. The Company shall use its best efforts to
                --------------------
provide that any successor (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in substance and
form satisfactory to the Employee, will assume this Agreement and agree
expressly to perform this Agreement in the same manner and to the same extent as
the Company would be required to perform it in the absence of a succession. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and delivers
the assumption agreement described in this Subsection 9(a) or which becomes
bound by this Agreement by operation of law.

          (b)   Employee's Successors. This Agreement and all rights of the
                ---------------------
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

                                       5
<PAGE>

          10.   Miscellaneous Provisions.
                ------------------------

          (a)   Notice. Notices and all other communications contemplated by
                ------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices shall
be addressed to him at the home address which he most recently communicated to
the Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.

          (b)   Waiver. No provision of this Agreement shall be modified, waived
                ------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

          (c)   Whole Agreement; Modifications. No agreements, representations
                ------------------------------
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement, the Stock Restriction Agreement
or the Confidentiality, Inventions and Noncompetition Agreement dated as of
November 1, 1996 between Employee and the Company's predecessor in interest,
HealthKnowledge Corporation, a Washington corporation (the "Inventions
Agreement") have been made or entered into by either party with respect to the
subject matter hereof. This Agreement, the Stock Restriction Agreement and the
Inventions Agreement contain the entire understanding of the parties with
respect to the subject matter hereof. A modification of this Agreement shall be
valid only if it is made in writing and executed by both parties hereto.

          (d)   Withholding Taxes. All payments and imputed payments made under
                -----------------
this Agreement shall be subject to reduction to reflect taxes or other charges
required to be withheld by law.

          (e)   Choice of Law. The validity, interpretation, construction and
                -------------
performance of this Agreement shall be governed by the laws of the State of
Washington.

          (f)   Severability. The invalidity or unenforceability of any
                ------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

                                       6
<PAGE>

          (g)   Dispute Resolution Procedure.
                ----------------------------

                (i)     The parties agree that any dispute arising out of or
related to the Employment relationship between them, including but not limited
to common law or statutory claims for discrimination, wrongful discharge, breach
of contract, breach of public policy, physical or mental harm or distress,
unpaid wages or any other dispute, shall be resolved by binding arbitration,
except where the law specifically forbids the use of arbitration as a final and
binding remedy.

                (ii)    The party claiming to be aggrieved shall furnish to the
other party a written statement of the grievance identifying any witnesses or
documents that support the grievance and the relief requested or proposed.

                (iii)   If the other party does not agree to furnish the relief
requested or proposed, or otherwise does not satisfy the demand of the party
claiming to be aggrieved, the parties shall submit the dispute to nonbinding
mediation before a mediator to be jointly selected by the parties. The Company
will pay the cost of the mediation.

                (iv)    If the mediation does not produce a resolution of the
dispute, the parties agree that the dispute shall be resolved by final and
binding arbitration in Seattle, Washington. The parties shall attempt to agree
to the identity of an arbitrator, and, if they are unable to do so, the parties
agree to assignment of an arbitrator from Judicial Arbitration and Mediation
Services (JAMS). The arbitrator shall have the authority to determine whether
the conduct complained of in section (g)(ii) violates the rights of the
complaining party and, if so, to grant any relief authorized by law; provided,
however, that the employee and the Company agree that for violations of the
employee's trade secret obligations, the Company reserves the right to seek
preliminary injunctive relief in court in order to preserve the status quo or
prevent irreparable injury before the matter can be heard in arbitration. The
arbitrator shall not have the authority to modify, change or refuse to enforce
the terms of this Agreement. In addition, the arbitrator shall not have the
authority to require the Company to change any lawful policy or benefit plan.
The hearing shall be transcribed. The Company shall bear the costs of the
arbitration if the Employee prevails. If the Company prevails, the Employee will
pay half the cost of the arbitration or $500, whichever is less. Each party
shall be responsible for paying its own attorneys fees, unless the law provides
otherwise. Arbitration shall be the exclusive final remedy for any dispute
between the parties, and the parties agree that no dispute shall be submitted to
arbitration where the party claiming to be aggrieved has not complied with the
preliminary steps provided for in clauses (ii) and (iii) above.

                (v)     Employee acknowledges that he has carefully read this
arbitration agreement and understands it, and is entering into the agreement
voluntarily after a reasonable period of time to consider it and review it with
personal legal counsel. Employee also acknowledges he may be giving up the
opportunity to

                                       7
<PAGE>

bring claims before a court or jury, and does so in order to gain the benefits
of a speedy, impartial and cost-effective resolution procedure.

          (h)   No Assignment. The rights of any person to payments or benefits
                -------------
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Subsection 10(h) shall be void.

          (i)   Attorney's Fees. Within 30 days of the execution hereof, the
                ---------------
Company agrees to reimburse the reasonable legal fees and expenses incurred by
Employee, not to exceed $2,500, in connection with the negotiation of this
Agreement and related transactions.

          IN WITNESS WHEREOF, each of the parties has executed this Agreement,
          ------------------
in the case of the Company by its duly authorized officer, as of the day and
year first above written.

                              /s/ Dennis Schmuland
                              -----------------------------
                                  Dennis P. Schmuland, M.D.


                              HEALTHKNOWLEDGE CORPORATION

                              By /s/ T. Kilgallon
                                 --------------------------
                                     Timothy J. Kilgallon
                                     President and Chief
                                     Executive Officer

                                       8