Document:

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                                                                   Exhibit 10.12

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

         THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is dated this 14th
day of February, 2001, between RES-CARE, INC., a Kentucky corporation (the
"Company"), and PAUL G. DUNN (the "Employee").

         RECITALS:

         WHEREAS, the Employee has been employed by the Company since May 1,
1997, and the services of the Employee, his managerial experience, and his
knowledge of the affairs of the Company are of great value to the Company;

         WHEREAS, the Company and the Employee entered into an Employment
Agreement dated as of April 13, 1997, as amended by those certain letter
agreements dated August 4, 1997 and October 1, 1998 (collectively, the "Prior
Agreement");

         WHEREAS, the initial term of the Prior Agreement expired on April 30,
2000 and the term of the Prior Agreement was extended for an additional year,
expiring on April 30, 2001;

         WHEREAS, the Employee possesses substantial knowledge of the business
and affairs of the Company, its policies, methods, personnel and plans for the
future;

         WHEREAS, the Board of Directors of the Company recognizes that the
Employee's contribution to the growth and success of the Company has been
substantial and wishes to offer an inducement to the Employee to remain in the
employ of the Company; and

         WHEREAS, the Company and the Employee desire to supersede the Prior
Agreement, effective on the Commencement Date (as defined below), by executing
this Employment Agreement and agreeing to be bound by the terms thereof.

         AGREEMENT:

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties agree as follows:

         1. EMPLOYMENT AND TERM. The Company hereby employs the Employee, and
the Employee accepts such employment, upon the terms and conditions herein set
forth for an initial term commencing effective January 1, 2001 (the
"Commencement Date"), and ending on December 31, 2003, subject to earlier
termination only in accordance with the express provisions of this Employment
Agreement ("Initial Term"). This Employment Agreement shall be automatically
extended on a year-to-year basis (January 1 through December 31 of each
successive year), unless sooner terminated in accordance with the express
provisions of this Employment Agreement ("Additional Terms"), upon the
expiration of the Initial Term or any Additional Term, unless prior to the
commencement of a sixty (60) day period expiring at the end of such Initial Term
or any Additional Term, the Company or the Employee shall have given written
notice to the other stating that the term of this Employment Agreement shall not
be extended.

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For purposes of this Employment Agreement, the term "Term" shall mean the
Initial Term plus all Additional Terms.

         2. DUTIES.

                  (a) EMPLOYMENT AS CHIEF DEVELOPMENT OFFICER. During the Term,
         the Employee shall serve as the Chief Development Officer of the
         Company. The Employee shall, subject to the supervision and control of
         the Chairman, President and Chief Executive Officer of the Company
         ("Chairman") and the Board of Directors of the Company (the "Board")
         (i) develop additional business and revenues for the Company and its
         subsidiaries, including, as appropriate, identifying, locating,
         analyzing, negotiating, and arranging for the acquisition of new
         business of the Company and its subsidiaries through the acquisition of
         equity interests in or the assets of existing enterprises, joint
         venture arrangements, management agreements or consulting agreements;
         (ii) negotiate for and oversee the disposition of assets, businesses
         and/or operations of the Company and its subsidiaries; and (iii)
         negotiate and/or provide oversight for all leasing of real estate for
         the Company and its subsidiaries, whether as lessor or lessee. The
         Employee shall also perform such other duties and exercise such powers
         over and with regard to the business of the Company as may be
         prescribed from time to time by the Chairman or the Board, including,
         without limitation, serving as an officer or director of one or more
         subsidiaries or affiliates of the Company, if elected to such
         positions, without any additional salary or other compensation.

                  (b) TIME AND EFFORT. The Employee shall devote his best
         efforts and all of his business time, energies and talents exclusively
         to the business of the Company and to no other business during the Term
         of this Employment Agreement; provided, however, that subject to the
         restrictions in Section 7 hereof, the Employee may (i) invest his
         personal assets in such form or manner as will not require his services
         in the operation of the affairs of the entities in which such
         investments are made and (ii) subject to satisfactory performance of
         the duties described in Section 2(a) hereof, devote such time as may be
         reasonably required for him to continue to maintain his current level
         of participation in various civic and charitable activities.

                  (c) EMPLOYEE CERTIFICATION OF ELIGIBILITY. Not less frequently
         than annually and upon the termination of the Employee's employment
         hereunder for any reason other than Employee's death, the Employee
         shall execute and deliver to the Chairman and/or any other authorized
         officer designated by the Company a certificate (ResCare Annual
         Employment Re-Certification Eligibility Form) confirming, to the best
         of the Employee's knowledge, that the Employee remains eligible for
         employment with the Company. This same certificate will certify that
         the Employee has complied with applicable laws, regulations and Company
         policies regarding the provision of services to clients and billings to
         its paying agencies, Company policies on training, Drug and
         Alcohol-Free Program, Prohibition of Harassment, Discrimination and
         Violence in the Workplace. This statement shall state that the Employee
         is not aware of any such violation by other employees, independent
         contractors, vendors, or other individuals performing services for the
         Company and its subsidiaries that they did not report as appropriate.

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         3. COMPENSATION AND BENEFITS.

                  (a) BASE SALARY. For the period immediately prior to the
         Commencement Date, the Employee's Base Salary under the Prior Agreement
         was an annual amount of $155,291.24 (the "Previous Salary"). Under the
         Prior Agreement as modified by the verbal agreement of the parties,
         effective January 1, 2001, the Employee would have been entitled to an
         increase in the Previous Salary for the period May 1, 2000 through
         December 31, 2000 using the methodology provided in the second literary
         paragraph of Section 3 of the Prior Agreement, which increase is not
         yet susceptible of calculation. Such Previous Salary, as it would have
         been so increased, is hereinafter referred to as the "Initial Base
         Salary". The Company shall pay to the Employee during the Term an
         annual salary (the "Base Salary"), which initially shall be equal to
         the Initial Base Salary. Commencing effective March 1, 2001, the Base
         Salary shall be increased to $210,000. The Base Salary shall be due and
         payable in substantially equal bi-weekly installments or in such other
         installments as may be necessary to comport with the Company's normal
         pay periods for all employees.

                  Provided that this Employment Agreement or Employee's
         employment hereunder shall not have been terminated for any reason, the
         Base Salary shall be increased, effective as of the first day of each
         January, commencing January 1, 2002, by the greater of (x) five percent
         (5%) or (y) the percentage by which the Consumer Price Index for all
         Urban Consumers (CPI-U), All-Items, 1982-1984=100, as published by the
         Bureau of Labor Statistics (the "CPI"), established for the month of
         December immediately preceding the date on which the adjustment is to
         be made exceeds the CPI published for the month of December of the
         immediately preceding year. If the Bureau of Labor Statistics suspends
         or terminates its publication of the CPI, the parties agree that a
         reasonably comparable price index shall be substituted for the CPI.

                  (b) INCENTIVE PROGRAM. During the Term, the Employee shall be
         eligible for incentive compensation in accordance with a written
         incentive program mutually established by the Chairman and the Employee
         on an annual basis (the "Incentive Program"). The Incentive Program
         shall provide that sixty-five percent (65%) of the maximum incentive
         that may be earned by the Employee shall be based on compliance goals
         mutually established by the Chairman and the Employee and thirty-five
         percent (35%) of the maximum incentive that may be earned by the
         Employee shall be based on the financial performance of the Company and
         its subsidiaries as a whole. All incentive payments under the Incentive
         Program shall be determined quarterly, and shall be calculated by
         reference to the incentive percentage earned by the Employee multiplied
         by the Base Salary actually paid to the Employee for the calendar
         quarter for which the incentive is determined. The maximum percentage
         of the Employee's Base Salary that the Employee may earn under the
         Incentive Program shall be forty percent (40%) of the Base Salary
         actually paid to the Employee for the calendar quarter for which the
         incentive is determined. Any quarterly incentive earned by the Employee
         for any calendar quarter shall be paid by the Company to the Employee
         not later than sixty (60) days after the end of such calendar quarter.
         Any amounts earned by the Employee under the Incentive Program shall be
         hereinafter referred to as the "Performance Incentive."

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                  (c) PARTICIPATION IN BENEFIT PLANS. During the Term, Employee
         shall be entitled to participate in all employee benefit plans and
         programs (including but not limited to vacation, sick and other time
         off policies, retirement and profit sharing plans, health insurance,
         etc.) provided by the Company under which the Employee is eligible in
         accordance with the terms of such plans and programs. The Company
         reserves the right to amend, modify or terminate in their entirety any
         of such programs and plans.

                  (d) STOCK OPTION GRANT. As an inducement for the execution of
         this Employment Agreement by the Employee, on March 8, 2001 (the "Grant
         Date"), the Employee shall be granted options to purchase 35,000 shares
         of Company common stock. Such stock options shall be granted pursuant
         to and, to the extent not expressly inconsistent herewith, governed by
         the Company stock option plan that is applicable to its managerial
         employees (the "Stock Plan"). Twenty percent (20%) of such stock
         options shall vest and be exercisable on the Grant Date. Provided the
         Employee shall continue to be employed hereunder, twenty percent (20%)
         of such stock options shall vest and be exercisable on each of the next
         four (4) anniversaries of the Grant Date (with such number of shares to
         be adjusted in accordance with the terms of the Stock Plan for stock
         splits, stock dividends, recapitalizations and the like). Any stock
         options that shall not be vested at the effective date of termination
         of the Employee's employment hereunder shall expire and any vested
         options shall expire in accordance with the terms of the Stock Plan.
         Such options shall have an exercise price based upon the closing sale
         price of Company common stock as reported on the Nasdaq National Market
         on the Grant Date.

                  (e) OUT-OF-POCKET EXPENSES. The Company shall promptly pay the
         ordinary, necessary and reasonable expenses incurred by the Employee in
         the performance of the Employee's duties hereunder (or if such expenses
         are paid directly by the Employee shall promptly reimburse him for such
         payment), consistent with the reimbursement policies adopted by the
         Company from time to time and subject to the prior written approval by
         the Chairman.

                  (f) EXISTING LOAN. On December 1, 1997, the Company loaned the
         Employee the principal sum of $15,000 (the "Loan"), and the Employee
         executed and delivered to the Company a Term Promissory Note (the
         "Note"), the original maturity date of which was April 30, 2000. The
         Company previously agreed to extend the original maturity date of the
         Note and the Employee's obligation to pay the outstanding principal
         balance and all accrued and unpaid interest under the Note to the
         earlier of April 30, 2001, or the date of termination under the Prior
         Agreement. The maturity date of the Note and the Employee's obligation
         to pay the outstanding principal balance and all accrued and unpaid
         interest under the Note is hereby extended to the earlier of May 1,
         2003, or the Date of Termination under this Employment Agreement. On
         May 1, 2001, provided Employee then remains a full-time employee of the
         Company and has satisfied his tax withholding obligations in paragraph
         (g) of this Section 3, one-third (1/3) of the then outstanding
         principal balance of the Note and one-third (1/3) of the then accrued
         and unpaid interest under the Note shall be reduced and forgiven by the
         Company. On May 1, 2002, provided Employee then remains a full-time
         employee of the Company and has satisfied his tax withholding
         obligations in paragraph (g) of this Section 3, one-half (1/2) of the
         then outstanding principal balance of the Note and one-half (1/2) of
         the then accrued and unpaid interest under the Note shall be reduced
         and forgiven by the

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         Company. On May 1, 2003, provided Employee then remains a full-time
         employee of the Company and has satisfied his tax withholding
         obligations in paragraph (g) of this Section 3, all of the then
         outstanding principal balance of the Note and all of the then accrued
         and unpaid interest under the Note shall be reduced and forgiven by the
         Company. Any reductions and forgiveness of the Loan shall be deemed a
         compensation bonus to the Employee under this Employment Agreement.

                  (g) WITHHOLDING OF TAXES; INCOME TAX TREATMENT. If, upon the
         payment of any compensation or benefit to the Employee under this
         Employment Agreement (including, without limitation, in connection with
         the exercise of any option and the reduction and forgiveness of any
         portion of the Loan), the Company determines in its discretion that it
         is required to withhold or provide for the payment in any manner of
         taxes, including but not limited to, federal income or social security
         taxes, state income taxes or local income taxes, the Employee agrees
         that the Company may satisfy such requirement by:

                           (i) withholding an amount necessary to satisfy such
                  withholding requirement from the Employee's compensation or
                  benefit; or

                           (ii) conditioning the payment or transfer of such
                  compensation or benefit upon the Employee's payment to the
                  Company of an amount sufficient to satisfy such withholding
                  requirement.

         The Employee agrees that he will treat all of the amounts payable
         pursuant to this Employment Agreement as compensation for income tax
         purposes.

         4. TERMINATION. The Employee's employment hereunder may be terminated
under this Employment Agreement as follows, subject to the Employee's rights
pursuant to Section 5 hereof:

                  (a) DEATH. The Employee's employment hereunder shall terminate
         upon his death.

                  (b) DISABILITY. The Employee's employment shall terminate
         hereunder at the earlier of (i) immediately upon the Company's
         determination (conveyed by a Notice of Termination (as defined in
         paragraph (f) of this Section 4)) that the Employee is permanently
         disabled, and (ii) the Employee's absence from his duties hereunder for
         180 days. "Permanent disability" for purposes of this Employment
         Agreement shall mean the onset of a physical or mental disability which
         prevents the Employee from performing the essential functions of the
         Employee's duties hereunder, which is expected to continue for 180 days
         or more, subject to any reasonable accommodation required by state
         and/or federal disability anti-discrimination laws, including, but not
         limited to, the Americans With Disabilities Act of 1990, as amended.

                  (c) CAUSE. The Company may immediately terminate the
         Employee's employment hereunder for Cause by delivering to the Employee
         a Notice of Termination so indicating. For purposes of this Employment
         Agreement, the Company shall have "Cause" to terminate the Employee's
         employment because of the Employee's personal

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         dishonesty, intentional misconduct, breach of fiduciary duty involving
         personal profit, conviction of, or plea of nolo contendere to, any law,
         rule or regulation (other than traffic violations or similar offenses)
         or breach of any provision of this Employment Agreement.

                  (d) WITHOUT CAUSE. The Company shall have the right to
         terminate the Employee's employment under this Employment Agreement at
         any time without Cause (as defined in paragraph (c) of this Section 4)
         by delivery of a Notice of Termination specifying a date of termination
         at least thirty (30) days following delivery of such notice.

                  (e) VOLUNTARY TERMINATION. By not less than thirty (30) days
         prior written notice to the Chairman, Employee may voluntarily
         terminate his employment hereunder.

                  (f) NOTICE OF TERMINATION. Any termination of the Employee's
         employment by the Company during the Term pursuant to paragraphs (b),
         (c) or (d) of this Section 4 shall be communicated by a Notice of
         Termination to the Employee. For purposes of this Employment Agreement,
         a "Notice of Termination" shall mean a written notice which shall
         indicate the specific termination provision in this Employment
         Agreement relied upon and in the case of any termination for Cause
         shall set forth in reasonable detail the facts and circumstances
         claimed to provide a basis for termination of the Employee's
         employment.

                  (g) DATE OF TERMINATION. The "Date of Termination" shall, for
         purposes of this Employment Agreement, mean: (i) if the Employee's
         employment is terminated by his death, the date of his death; (ii) if
         the Employee's employment is terminated on account of disability
         pursuant to Section 4(b) above, thirty (30) days after Notice of
         Termination is given (provided that the Employee shall not, during such
         30-day period, have returned to the performance of his duties on a
         full-time basis), (iii) if the Employee's employment is terminated by
         the Company for Cause pursuant to Section 4(c) above, the date
         specified in the Notice of Termination, (iv) if the Employee's
         employment is terminated by the Company without Cause, pursuant to
         Section 4(d) above, the date specified in the Notice of Termination,
         (v) if the Employee's employment is terminated voluntarily pursuant to
         Section 4(e) above, the date specified in the written notice delivered
         by the Employee to the Company as provided in Section 4(e) above, and
         (vi) if the Employee's employment is terminated by reason of an
         election by either party not to extend the Term, the last day of the
         then effective Term.

         5. COMPENSATION UPON TERMINATION OR DURING DISABILITY.

                  (a) DEATH. If the Employee's employment is terminated by
         reason of his death during the Term, the Employee shall continue to
         receive installments of his then current Base Salary until the date of
         his death, shall receive any earned but unpaid Performance Incentive
         for any calendar quarter ending prior to the date of his death and the
         entire remaining principal balance and all accrued and unpaid interest
         on the Note shall be forgiven by the Company and deemed paid.

                  (b) DISABILITY. If the Employee's employment is terminated by
         reason of his disability during the Term, the Employee shall continue
         to receive installments of his then current Base Salary while actively
         at work and until the earlier of (i) the date of

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         termination in accordance with Section 4(b) of this Employment
         Agreement or (ii) the date that short or long-term disability payments
         to the Employee commence under any plan or program then provided and
         funded by the Company. If the Employee's installments of Base Salary
         cease by reason of clause (ii) of the preceding sentence but the
         benefits payable under any such disability plan or program do not
         provide 100% replacement of the Employee's installments of Base Salary
         during such period, the Employee shall be paid at regular payroll
         intervals until the provisions of clause (i) of the preceding sentence
         becomes effective, an amount equal to the difference between the
         periodic installments of his then current Base Salary that would have
         otherwise been payable and the disability benefit paid from such
         disability plan or program. In the event of any such termination, the
         Employee shall also receive any earned but unpaid Performance Incentive
         for any calendar quarter prior to the Date of Termination and the
         entire remaining principal balance and all accrued and unpaid interest
         on the Note shall be forgiven by the Company and deemed paid. Upon
         termination due to death prior to a termination as specified in the
         preceding provisions of this paragraph (b), the payment provisions of
         this paragraph (b) shall no longer apply and Section 5(a) above shall
         apply.

                  (c) CAUSE. If the Employee's employment is terminated for
         Cause, the Employee shall continue to receive installments of his then
         current Base Salary only through the Date of Termination and the
         Employee shall not be entitled to receive any Performance Incentive
         (other than any earned but unpaid Performance Incentive for any prior
         calendar quarter), the then remaining principal balance and all accrued
         and unpaid interest under the Note shall be immediately due and payable
         in full by Employee and Employee shall not be eligible for any
         severance payment of any nature.

                  (d) WITHOUT CAUSE. If the Employee's employment is terminated
         without Cause, the Employee shall continue to receive installments of
         his then current Base Salary until the Date of Termination and for one
         (1) year thereafter, shall also be entitled to receive any earned but
         unpaid Performance Incentive for any calendar quarter ending prior to
         the Date of Termination and the entire remaining principal balance and
         all accrued and unpaid interest on the Note shall be forgiven by the
         Company and deemed paid.

                  (e) EXPIRATION OF TERM. If the Employee's employment shall be
         terminated by reason of expiration of the Term by reason of Employee's
         election not to extend the Term, the Employee shall continue to receive
         installments of his then current Base Salary until the Date of
         Termination and shall also be entitled to receive any earned but unpaid
         Performance Incentive for any calendar quarter ending prior to the Date
         of Termination. If the Employee's employment shall be terminated by
         reason of expiration of the Term by reason of the Company's election
         not to extend the Term, the Employee shall continue to receive
         installments of his then current Base Salary until the Date of
         Termination and for one (1) year thereafter and shall also be entitled
         to receive any earned but unpaid Performance Incentive for any calendar
         quarter ending prior to the Date of Termination.

                  (f) VOLUNTARY TERMINATION. If the Employee's employment shall
         be terminated pursuant to Section 4(e) hereof, the Employee shall
         continue to receive installments of his then current Base Salary until
         the Date of Termination and the Employee shall not be entitled to
         receive any Performance Incentive (other than any

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         earned but unpaid Performance Incentive for any calendar quarter ending
         prior to the Date of Termination), the then remaining principal balance
         and all accrued and unpaid interest under the Note shall be immediately
         due and payable in full by Employee and Employee shall not be entitled
         to any severance payment of any nature.

                  (g) NO FURTHER OBLIGATIONS AFTER PAYMENT. After all payments,
         if any, have been made to the Employee pursuant to the applicable
         provisions of paragraphs (a) through (f) of this Section 5, the Company
         shall have no further obligations to the Employee under this Employment
         Agreement other than the provision of any employee benefit plan
         required to be continued under applicable law or by its terms.

         6. DUTIES UPON TERMINATION. Upon the termination of Employee's
employment hereunder for any reason whatsoever (including but not limited to the
failure of the parties hereto to agree to the extension of this Employment
Agreement pursuant to Section 1 hereof), Employee shall promptly (a) comply with
his obligation to deliver an executed exit interview document as provided in
accordance with Company policy, and (b) return to the Company any property of
the Company or its subsidiaries then in Employee's possession or control,
including without limitation, any Confidential Information (as defined in
Section 7(d)(iii) hereof) and whether or not constituting Confidential
Information, any technical data, performance information and reports, sales or
marketing plans, documents or other records, and any manuals, drawings, tape
recordings, computer programs, discs, and any other physical representations of
any other information relating to the Company, its subsidiaries or affiliates or
to the Business (as defined in Section 7(d)(iv) hereof) of the Company. Employee
hereby acknowledges that any and all of such documents, items, physical
representations and information are and shall remain at all times the exclusive
property of the Company.

         7. RESTRICTIVE COVENANTS.

                  (a) ACKNOWLEDGMENTS. Employee acknowledges that (i) his
         services hereunder are of a special, unique and extraordinary character
         and that his position with the Company places him in a position of
         confidence and trust with the operations of the Company, its
         subsidiaries and affiliates (collectively, the "Res-Care Companies")
         and allows him access to Confidential Information, (ii) the Company has
         provided Employee with a unique opportunity as the Company's Chief
         Development Officer, (iii) the nature and periods of the restrictions
         imposed by the covenants contained in this Section 7 are fair,
         reasonable and necessary to protect and preserve for the Company the
         benefits of Employee's employment hereunder, (iv) the Res-Care
         Companies would sustain great and irreparable loss and damage if
         Employee were to breach any of such covenants, (v) the Res-Care
         Companies conduct and are aggressively pursuing the conduct of their
         business actively in and throughout the entire Territory (as defined in
         paragraph (d)(ii) of this Section 7), and (vi) the Territory is
         reasonably sized because the current Business of the Res-Care Companies
         is conducted throughout such geographical area, the Res-Care Companies
         are aggressively pursuing expansion and new operations throughout such
         geographic area and the Res-Care Companies require the entire Territory
         for profitable operations.

                  (b) CONFIDENTIALITY AND NON-DISPARAGEMENT COVENANTS. Having
         acknowledged the foregoing, Employee covenants that without limitation
         as to time, (i) commencing on

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         the Commencement Date, he will not directly or indirectly disclose or
         use or otherwise exploit for his own benefit, or the benefit of any
         other Person (as defined in paragraph (d)(v) of this Section 7), except
         as may be necessary in the performance of his duties hereunder, any
         Confidential Information, and (ii) commencing on the Date of
         Termination, he will not disparage or comment negatively about any of
         the Res-Care Companies, or their respective officers, directors,
         employees, policies or practices, and he will not discourage anyone
         from doing business with any of the Res-Care Companies and will not
         encourage anyone to withdraw their employment with any of the Res-Care
         Companies.

                  (c) COVENANTS. Having acknowledged the statements in Section
         7(a) hereof, Employee covenants and agrees with the Res-Care Companies
         that he will not, directly or indirectly, from the Commencement Date
         until the Date of Termination, and for a period of eighteen (18) months
         thereafter, directly or indirectly (i) offer employment to, hire,
         solicit, divert or appropriate to himself or any other Person, any
         business or services (similar in nature to the Business) of any person
         who was an employee or an agent of any of the Res-Care Companies at any
         time during the last twelve (12) months of Employee's employment
         hereunder; or (ii) own, manage, operate, join, control, assist,
         participate in or be connected with, directly or indirectly, as an
         officer, director, shareholder, partner, proprietor, employee, agent,
         consultant, independent contractor or otherwise, any Person which is,
         at the time, directly or indirectly, engaged in the Business of the
         Res-Care Companies within the Territory. The Employee further agrees
         that from the Commencement Date until the Date of Termination, he will
         not undertake any planning for or organization of any business activity
         that would be competitive with the Business.

                  (d) DEFINITIONS. For purposes of this Employment Agreement:

                           (i) For purposes of this Section 7, "termination of
                  Employee's employment" shall include any termination pursuant
                  to paragraphs (b), (c), (d) and (e) of Section 4 hereof, the
                  termination of such Employee's employment by reason of the
                  failure of the parties hereto to agree to the extension of
                  this Agreement pursuant to Section 1 hereof or the voluntary
                  termination of Employee's employment hereunder.

                           (ii) The "Territory" shall mean the forty-eight (48)
                  contiguous states of the United States, the United States
                  Virgin Islands, Puerto Rico and all of the Provinces of
                  Canada.

                           (iii) "Confidential Information" shall mean any
                  business information relating to the Res-Care Companies or to
                  the Business (whether or not constituting a trade secret),
                  which has been or is treated by any of the Res-Care Companies
                  as proprietary and confidential and which is not generally
                  known or ascertainable through proper means. Without limiting
                  the generality of the foregoing, so long as such information
                  is not generally known or ascertainable by proper means and is
                  treated by the Res-Care Companies as proprietary and
                  confidential, Confidential Information shall include the
                  following information regarding any of the Res-Care Companies:

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                                    (1)     any patent, patent application,
                                            copyright, trademark, trade name,
                                            service mark, service name,
                                            "know-how" or trade secrets;

                                    (2)     customer lists and information
                                            relating to (i) any client of any of
                                            the Res-Care Companies or (ii) any
                                            client of the operations of any
                                            other Person for which operations
                                            any of the Res-Care Companies
                                            provides management services;

                                    (3)     supplier lists, pricing policies,
                                            consulting contracts and competitive
                                            bid information;

                                    (4)     records, operational methods and
                                            Company policies and procedures,
                                            including manuals and forms;

                                    (5)     marketing data, plans and
                                            strategies;

                                    (6)     business acquisition, development,
                                            expansion or capital investment plan
                                            or activities;

                                    (7)     software and any other confidential
                                            technical programs;

                                    (8)     personnel information, employee
                                            payroll and benefits data;

                                    (9)     accounts receivable and accounts
                                            payable;

                                    (10)    other financial information,
                                            including financial statements,
                                            budgets, projections, earnings and
                                            any unpublished financial
                                            information; and

                                    (11)    correspondence and communications
                                            with outside parties.

                           (iv) The "Business" of the Res-Care Companies shall
                  mean the business of providing youth treatment or services,
                  services to persons with mental retardation and other
                  developmental disabilities, including but not limited to
                  persons who have been dually diagnosed, services to persons
                  with acquired brain injuries, training services, or providing
                  management and/or consulting services to third parties
                  relating to the foregoing.

                           (v) The term "Person" shall mean an individual, a
                  partnership, an association, a corporation, a trust, an
                  unincorporated organization, or any other business entity or
                  enterprise.

                  (e) INJUNCTIVE RELIEF, INVALIDITY OF ANY PROVISION. Employee
         acknowledges that his breach of any covenant contained in this Section
         7 will result in irreparable injury to the Res-Care Companies and that
         the remedy at law of such parties for such a breach will be inadequate.
         Accordingly, Employee agrees and consents that each of the Res-Care
         Companies in addition to all other remedies available to them at law
         and in equity,

                                       10
<PAGE>   11

           shall be entitled to seek both preliminary and permanent injunctions
           to prevent and/or halt a breach or threatened breach by Employee of
           any covenant contained in this Section 7. If any provision of this
           Section 7 is invalid in part or in whole, it shall be deemed to have
           been amended, whether as to time, area covered, or otherwise, as and
           to the extent required for its validity under applicable law and, as
           so amended, shall be enforceable. The parties further agree to
           execute all documents necessary to evidence such amendment.

                  (f) ADVICE TO FUTURE EMPLOYERS. If Employee, in the future,
         seeks or is offered employment by any other Person, he shall provide a
         copy of this Section 7 to the prospective employer prior to accepting
         employment with that prospective employer.

         8. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Employment Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in them and supersedes all prior and contemporaneous
agreements, representations, and understandings of the parties, including but
not limited to the Prior Agreement. No supplement, modification, or amendment of
this Employment Agreement shall be binding unless executed in writing by all
parties hereto (other than by reason of the prospective modification of the
Incentive Program by the Company or as provided in the next to last sentence of
Section 7(e) hereof). No waiver of any of the provisions of this Employment
Agreement will be deemed, or will constitute, a waiver of any other provision,
whether or not similar, nor will any waiver constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver.

         9. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Employment Agreement shall
be binding on, and inure to the benefit of, the parties hereto and their
respective heirs, executors, legal representatives, successors and assigns;
PROVIDED, HOWEVER, that this Employment Agreement is intended to be personal to
the Employee and the rights and obligations of the Employee hereunder may not be
assigned or transferred by him.

         10. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Employment Agreement, or
any other agreement executed in connection therewith, shall be in writing and
shall be deemed to have been given on the date of delivery personally or upon
deposit in the United States mail postage prepaid by registered or certified
mail, return receipt requested, to the appropriate party or parties at the
following addresses (or at such other address as shall hereafter be designated
by any party to the other parties by notice given in accordance with this
Section):

                  TO THE COMPANY:

                  ResCare, Inc.
                  10140 Linn Station Road
                  Louisville, Kentucky 40223
                  Attn:    Ronald G. Geary,
                           Chairman, President and Chief Executive Officer

                                       11
<PAGE>   12

                  TO THE EMPLOYEE:
                  ---------------

                  Paul G. Dunn
                  1204 Isleworth Drive
                  Louisville, Kentucky 40245

         11. EXECUTION IN COUNTERPARTS. This Employment Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.

         12. FURTHER ASSURANCES. The parties each hereby agree to execute and
deliver all of the agreements, documents and instruments required to be executed
and delivered by them in this Employment Agreement and to execute and deliver
such additional instruments and documents and to take such additional actions as
may reasonably be required from time to time in order to effectuate the
transactions contemplated by this Employment Agreement.

         13. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of
any particular provision of this Employment Agreement shall not affect the other
provisions hereof and this Employment Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.

         14. GOVERNING LAW; JURISDICTION; VENUE. This Employment Agreement is
executed and delivered in, and shall be governed by, enforced and interpreted in
accordance with the laws of, the Commonwealth of Kentucky. The parties hereto
agree that the federal or state courts located in Kentucky shall have the
exclusive jurisdiction with regard to any litigation relating to this Employment
Agreement and that venue shall be proper only in Jefferson County, Kentucky, the
location of the principal office of the Company.

         15. TENSE; CAPTIONS. In construing this Employment Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice versa, and the captions contained in this Employment Agreement shall be
ignored.

         16. SURVIVAL. The provisions of Sections 5, 6 and 7 hereof shall
survive the termination, for any reason, of this Employment Agreement, in
accordance with their terms.

         IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the day and year set forth above.

                                            RES-CARE, INC.

                                            By: --------------------------------
                                                Ronald G. Geary
                                                Chairman, President and Chief
                                                Executive Officer

                                       12
<PAGE>   13

                                            ------------------------------------
                                            Paul G. Dunn

                                       13<PAGE>   1

                                                                   Exhibit 10.13

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

         THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is dated this 6th
day of February, 2001, between RES-CARE, INC., a Kentucky corporation (the
"Company"), and JEFFREY M. CROSS (the "Employee").

         RECITALS:

         WHEREAS, the Employee has been employed by the Company since September
1, 1989, and the services of the Employee, his managerial experience, and his
knowledge of the affairs of the Company are of great value to the Company;

         WHEREAS, the Company and the Employee entered into an Employment
Agreement dated as of January 1, 1997, as amended by those certain letter
agreements dated August 4, 1997 and October 1, 1998 (collectively, the "Prior
Agreement");

         WHEREAS, the initial term of the Prior Agreement expired on December
31, 1999 and the term of the Prior Agreement was extended for an additional
year, expiring on December 31, 2000;

         WHEREAS, the Employee possesses substantial knowledge of the business
and affairs of the Company, its policies, methods, personnel and plans for the
future;

         WHEREAS, the Board of Directors of the Company recognizes that the
Employee's contribution to the growth and success of the Company has been
substantial and wishes to offer an inducement to the Employee to remain in the
employ of the Company; and

         WHEREAS, the Company and the Employee desire to supersede the Prior
Agreement, effective on the Commencement Date (as defined below), by executing
this Employment Agreement and agreeing to be bound by the terms thereof.

         AGREEMENT:

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties agree as follows:

         1. EMPLOYMENT AND TERM. The Company hereby employs the Employee, and
the Employee accepts such employment, upon the terms and conditions herein set
forth for an initial term commencing effective January 1, 2001 (the
"Commencement Date"), and ending on December 31, 2003, subject to earlier
termination only in accordance with the express provisions of this Employment
Agreement ("Initial Term"). This Employment Agreement shall be automatically
extended on a year-to-year basis (January 1 through December 31 of each
successive year), unless sooner terminated in accordance with the express
provisions of this Employment Agreement ("Additional Terms"), upon the
expiration of the Initial Term or any Additional Term, unless prior to the
commencement of a sixty (60) day period expiring at the end of such Initial Term
or any Additional Term, the Company or the Employee shall have given written

<PAGE>   2

notice to the other stating that the term of this Employment Agreement shall not
be extended. For purposes of this Employment Agreement, the term "Term" shall
mean the Initial Term plus all Additional Terms.

         2. DUTIES.

                  (a) EMPLOYMENT AS PRESIDENT OF DIVISION FOR PERSONS WITH
         DISABILITIES. During the Term, the Employee shall serve as the
         President of the Division for Persons with Disabilities of the Company.
         The Employee shall, subject to the supervision and control of the
         Chairman, President and Chief Executive Officer of the Company
         ("Chairman") and the Board of Directors of the Company (the "Board")
         perform such other duties and exercise such powers over and with regard
         to the business of the Company's Division for Persons with Disabilities
         as are presently being performed and exercised by him and such
         additional duties which are similar in nature and responsibility to
         those presently being performed by the Employee as may be prescribed
         from time to time by the Chairman or the Board, including, without
         limitation, serving as an officer or director of one or more
         subsidiaries or affiliates of the Company, if elected to such
         positions, without any additional salary or other compensation.

                  (b) TIME AND EFFORT. The Employee shall devote his best
         efforts and all of his business time, energies and talents exclusively
         to the business of the Company and to no other business during the Term
         of this Employment Agreement; provided, however, that subject to the
         restrictions in Section 7 hereof, the Employee may (i) invest his
         personal assets in such form or manner as will not require his services
         in the operation of the affairs of the entities in which such
         investments are made and (ii) subject to satisfactory performance of
         the duties described in Section 2(a) hereof, devote such time as may be
         reasonably required for him to continue to maintain his current level
         of participation in various civic and charitable activities.

                  (c) COMPLIANCE CERTIFICATE. Not less frequently than annually
         and upon the termination of the Employee's employment hereunder for any
         reason other than Employee's death, the Employee shall execute and
         deliver to the Chairman and/or any other authorized officer designated
         by the Company a certificate of the Employee's level of compliance with
         applicable laws, regulations and Company policies regarding the
         provision of services to clients and billings to its paying agencies (a
         "Compliance Certificate"). Each such Compliance Certificate requested
         by the Company shall be completed and delivered by the Employee to the
         officer of the Company requesting the same within two (2) days after
         the date of such request.

         3. COMPENSATION AND BENEFITS.

                  (a) BASE SALARY. For the period immediately prior to the
         Commencement Date, the Employee's Base Salary under the Prior Agreement
         was an annual amount of $158,862.60 (the "Previous Salary"). If the
         Prior Agreement had been automatically extended effective January 1,
         2001, the Employee would have been entitled to an increase in the
         Previous Salary as provided in the second literary paragraph of Section
         3 of the Prior Agreement, which increase is not yet susceptible of
         calculation. Such Previous Salary, as it would have been so increased,
         is hereinafter referred to as the "Initial Base

                                       2
<PAGE>   3

         Salary". The Company shall pay to the Employee during the Term an
         annual salary (the "Base Salary"), which initially shall be equal to
         the Initial Base Salary. Commencing effective March 1, 2001, the Base
         Salary shall be increased to $265,000. The Base Salary shall be due and
         payable in substantially equal bi-weekly installments or in such other
         installments as may be necessary to comport with the Company's normal
         pay periods for all employees.

                  Provided that this Employment Agreement or Employee's
         employment hereunder shall not have been terminated for any reason, the
         Base Salary shall be increased, effective as of the first day of each
         January, commencing January 1, 2002, by the greater of (x) five percent
         (5%) or (y) the percentage by which the Consumer Price Index for all
         Urban Consumers (CPI-U), All-Items, 1982-1984=100, as published by the
         Bureau of Labor Statistics (the "CPI"), established for the month of
         December immediately preceding the date on which the adjustment is to
         be made exceeds the CPI published for the month of December of the
         immediately preceding year. If the Bureau of Labor Statistics suspends
         or terminates its publication of the CPI, the parties agree that a
         reasonably comparable price index shall be substituted for the CPI.

                  (b) OPERATIONAL INCENTIVE PROGRAM. During the Term, the
         Employee shall participate in the Operational Incentive Program
         established by the Chairman on an annual basis (the "Incentive
         Program"). A copy of such Incentive Program that has been established
         for the calendar year 2001 is attached hereto as Exhibit A. Any
         modification to the terms of the Incentive Program by the Company shall
         be effective prospectively only and a copy of such modified program
         shall be furnished to the Employee prior to the effective date of such
         modification. All incentive payments under the Incentive Program shall
         be determined quarterly, and shall be calculated by reference to the
         incentive percentage earned by the Employee multiplied by the Base
         Salary actually paid to the Employee for the calendar quarter for which
         the incentive is determined. The maximum percentage of the Employee's
         Base Salary that the Employee may earn under the Incentive Program
         shall be fifty percent (50%) of the Base Salary actually paid to the
         Employee for the calendar quarter for which the incentive is
         determined. Any quarterly operational incentive earned by the Employee
         for any calendar quarter shall be paid by the Company to the Employee
         not later than sixty (60) days after the end of such calendar quarter.
         Any amounts earned by the Employee under the Incentive Program shall be
         hereinafter referred to as the "Operational Incentive."

                  (c) PARTICIPATION IN BENEFIT PLANS. During the Term, Employee
         shall be entitled to participate in all employee benefit plans and
         programs (including but not limited to vacation, sick and other time
         off policies, retirement and profit sharing plans, health insurance,
         etc.) provided by the Company under which the Employee is eligible in
         accordance with the terms of such plans and programs. The Company
         reserves the right to amend, modify or terminate in their entirety any
         of such programs and plans.

                  (d) STOCK OPTION GRANT. As an inducement for the execution of
         this Employment Agreement by the Employee, on March 8, 2001 (the "Grant
         Date"), the Employee shall be granted options to purchase 50,000 shares
         of Company common stock. Such stock options shall be granted pursuant
         to and, to the extent not expressly inconsistent herewith, governed by
         the Company stock option plan that is applicable to its

                                       3
<PAGE>   4

         managerial employees (the "Stock Plan"). Twenty percent (20%) of such
         stock options shall vest and be exercisable on the Grant Date. Provided
         the Employee shall continue to be employed hereunder, twenty percent
         (20%) of such stock options shall vest and be exercisable on each of
         the next four (4) anniversaries of the Grant Date (with such number of
         shares to be adjusted in accordance with the terms of the Stock Plan
         for stock splits, stock dividends, recapitalizations and the like). Any
         stock options that shall not be vested at the effective date of
         termination of the Employee's employment hereunder shall expire and any
         vested options shall expire in accordance with the terms of the Stock
         Plan. Such options shall have an exercise price based upon the closing
         sale price of Company common stock as reported on the Nasdaq National
         Market on the Grant Date.

                  (e) ADDITIONAL BENEFITS. As additional consideration for the
         execution of this Employment Agreement and the continuing services of
         the Employee hereunder, the Company has provided and will provide the
         following additional benefits to the Employee:

                           (i) Existing Loan. On April 14, 2000, the Company
                  loaned the Employee the principal sum of $100,000 (the
                  "Existing Loan"), and the Employee executed and delivered to
                  the Company a Promissory Note (the "Existing Note") and the
                  Company and the Employee executed a letter agreement relating
                  to the Existing Note (the "Existing Loan Agreement"). As set
                  forth more fully in the Existing Note and Existing Loan
                  Agreement, on April 1 of each year, commencing April 1, 2001,
                  provided Employee then remains a full-time employee of the
                  Company and has satisfied the tax withholding requirements in
                  the Existing Loan Agreement, the outstanding principal balance
                  of the Existing Note will be reduced by $25,000 and the
                  aggregate amount of interest accrued but unpaid on such amount
                  of principal reduction shall be reduced and forgiven by the
                  Company. The Company and the Employee acknowledge that the
                  terms and conditions of the Existing Note and Existing Loan
                  Agreement remain in full force and effect, except as
                  specifically modified by the last sentence of Section 5(d)
                  hereof. Any reductions and forgiveness of the Existing Loan
                  shall be deemed a compensation bonus to the Employee under
                  this Employment Agreement.

                           (ii) Additional Loan. On March 1, 2001, the Company
                  will loan to the Employee the additional principal sum of
                  $100,000, and the Employee will execute and deliver to the
                  Company the Promissory Note in the form attached hereto as
                  Exhibit B (the "Additional Note") and the Company and the
                  Employee will execute and deliver a letter agreement relating
                  to the Additional Note in the form attached hereto as Exhibit
                  C (the "Additional Loan Agreement"). As set forth more fully
                  in the Additional Note and the Additional Loan Agreement, on
                  the last day of each calendar month, commencing March 31,
                  2001, provided Employee then remains a full-time employee of
                  the Company and has satisfied the tax withholding requirements
                  in the Additional Loan Agreement, the outstanding principal
                  balance of the Additional Note will be reduced by $2,941.18
                  and the aggregate amount of interest accrued but unpaid on
                  such amount of principal reduction shall be reduced and
                  forgiven by the Company. Any reductions and forgiveness of the
                  Additional Loan shall be deemed a compensation bonus to the
                  Employee under this Employment Agreement.

                                       4
<PAGE>   5

                           (iii) Educational Expenses. Employee is enrolled in
                  the two (2) year Masters of Business Administration Program at
                  Vanderbilt University. Employee's enrollment and participation
                  in such program shall be eligible for reimbursement under the
                  Company's tuition reimbursement plan, subject to all of the
                  customary rules and restrictions of such plan, except that the
                  limitation on maximum reimbursement under such plan shall be
                  increased to $50,000 per calendar year.

                  (f) OUT-OF-POCKET EXPENSES. The Company shall promptly pay the
         ordinary, necessary and reasonable expenses incurred by the Employee in
         the performance of the Employee's duties hereunder (or if such expenses
         are paid directly by the Employee shall promptly reimburse him for such
         payment), consistent with the reimbursement policies adopted by the
         Company from time to time and subject to the prior written approval by
         the Chairman.

                  (g) WITHHOLDING OF TAXES; INCOME TAX TREATMENT. If, upon the
         payment of any compensation or benefit to the Employee under this
         Employment Agreement (including, without limitation, in connection with
         the exercise of any option), the Company determines in its discretion
         that it is required to withhold or provide for the payment in any
         manner of taxes, including but not limited to, federal income or social
         security taxes, state income taxes or local income taxes, the Employee
         agrees that the Company may satisfy such requirement by:

                           (i) withholding an amount necessary to satisfy such
                  withholding requirement from the Employee's compensation or
                  benefit; or

                           (ii) conditioning the payment or transfer of such
                  compensation or benefit upon the Employee's payment to the
                  Company of an amount sufficient to satisfy such withholding
                  requirement.

         The Employee agrees that he will treat all of the amounts payable
         pursuant to this Employment Agreement as compensation for income tax
         purposes. The Employee further agrees to comply with his withholding
         obligations in the Existing Loan Agreement and the Additional Loan
         Agreement.

         4. TERMINATION. The Employee's employment hereunder may be terminated
under this Employment Agreement as follows, subject to the Employee's rights
pursuant to Section 5 hereof:

                  (a) DEATH. The Employee's employment hereunder shall terminate
         upon his death.

                  (b) DISABILITY. The Employee's employment shall terminate
         hereunder at the earlier of (i) immediately upon the Company's
         determination (conveyed by a Notice of Termination (as defined in
         paragraph (f) of this Section 4)) that the Employee is permanently
         disabled, and (ii) the Employee's absence from his duties hereunder for
         180 days. "Permanent disability" for purposes of this Employment
         Agreement shall mean the

                                       5
<PAGE>   6

         onset of a physical or mental disability which prevents the Employee
         from performing the essential functions of the Employee's duties
         hereunder, which is expected to continue for 180 days or more, subject
         to any reasonable accommodation required by state and/or federal
         disability anti-discrimination laws, including, but not limited to, the
         Americans With Disabilities Act of 1990, as amended.

                  (c) CAUSE. The Company may immediately terminate the
         Employee's employment hereunder for Cause by delivering to the Employee
         a Notice of Termination so indicating. For purposes of this Employment
         Agreement, the Company shall have "Cause" to terminate the Employee's
         employment because of the Employee's personal dishonesty, intentional
         misconduct, breach of fiduciary duty involving personal profit, failure
         to perform his duties hereunder, conviction of, or plea of nolo
         contendere to, any law, rule or regulation (other than traffic
         violations or similar offenses) or breach of any provision of this
         Employment Agreement.

                  (d) WITHOUT CAUSE. The Company shall have the right to
         terminate the Employee's employment under this Employment Agreement at
         any time without Cause (as defined in paragraph (c) of this Section 4)
         by delivery of a Notice of Termination specifying a date of termination
         at least thirty (30) days following delivery of such notice.

                  (e) VOLUNTARY TERMINATION. By not less than thirty (30) days
         prior written notice to the Chairman, Employee may voluntarily
         terminate his employment hereunder.

                  (f) NOTICE OF TERMINATION. Any termination of the Employee's
         employment by the Company during the Term pursuant to paragraphs (b),
         (c) or (d) of this Section 4 shall be communicated by a Notice of
         Termination to the Employee. For purposes of this Employment Agreement,
         a "Notice of Termination" shall mean a written notice which shall
         indicate the specific termination provision in this Employment
         Agreement relied upon and in the case of any termination for Cause
         shall set forth in reasonable detail the facts and circumstances
         claimed to provide a basis for termination of the Employee's
         employment.

                  (g) DATE OF TERMINATION. The "Date of Termination" shall, for
         purposes of this Employment Agreement, mean: (i) if the Employee's
         employment is terminated by his death, the date of his death; (ii) if
         the Employee's employment is terminated on account of disability
         pursuant to Section 4(b) above, thirty (30) days after Notice of
         Termination is given (provided that the Employee shall not, during such
         30-day period, have returned to the performance of his duties on a
         full-time basis), (iii) if the Employee's employment is terminated by
         the Company for Cause pursuant to Section 4(c) above, the date
         specified in the Notice of Termination, (iv) if the Employee's
         employment is terminated by the Company without Cause, pursuant to
         Section 4(d) above, the date specified in the Notice of Termination,
         (v) if the Employee's employment is terminated voluntarily pursuant to
         Section 4(e) above, the date specified in the written notice delivered
         by the Employee to the Company as provided in Section 4(e) above, and
         (vi) if the Employee's employment is terminated by reason of an
         election by either party not to extend the Term, the last day of the
         then effective Term.

                                       6
<PAGE>   7

         5. COMPENSATION UPON TERMINATION OR DURING DISABILITY.

                  (a) DEATH. If the Employee's employment is terminated by
         reason of his death during the Term, the Employee shall continue to
         receive installments of his then current Base Salary until the date of
         his death, shall receive any earned but unpaid Operational Incentive
         for any calendar quarter ending prior to the date of his death and the
         entire remaining principal balance and all accrued and unpaid interest
         on the Existing Note and the Additional Note shall be forgiven by the
         Company and deemed paid.

                  (b) DISABILITY. If the Employee's employment is terminated by
         reason of his disability during the Term, the Employee shall continue
         to receive installments of his then current Base Salary while actively
         at work and until the earlier of (i) the date of termination in
         accordance with Section 4(b) of this Employment Agreement or (ii) the
         date that short or long-term disability payments to the Employee
         commence under any plan or program then provided and funded by the
         Company. If the Employee's installments of Base Salary cease by reason
         of clause (ii) of the preceding sentence but the benefits payable under
         any such disability plan or program do not provide 100% replacement of
         the Employee's installments of Base Salary during such period, the
         Employee shall be paid at regular payroll intervals until the
         provisions of clause (i) of the preceding sentence becomes effective,
         an amount equal to the difference between the periodic installments of
         his then current Base Salary that would have otherwise been payable and
         the disability benefit paid from such disability plan or program. In
         the event of any such termination, the Employee shall also receive any
         earned but unpaid Operational Incentive for any calendar quarter prior
         to the Date of Termination and the entire remaining principal balance
         and all accrued and unpaid interest on the Existing Note and the
         Additional Note shall be forgiven by the Company and deemed paid. Upon
         termination due to death prior to a termination as specified in the
         preceding provisions of this paragraph (b), the payment provisions of
         this paragraph (b) shall no longer apply and Section 5(a) above shall
         apply.

                  (c) CAUSE. If the Employee's employment is terminated for
         Cause, the Employee shall continue to receive installments of his then
         current Base Salary only through the Date of Termination and the
         Employee shall not be entitled to receive any Operational Incentive
         (other than any earned but unpaid Operational Incentive for any prior
         calendar quarter), and shall not be eligible for any severance payment
         of any nature.

                  (d) WITHOUT CAUSE. If the Employee's employment is terminated
         without Cause, the Employee shall continue to receive installments of
         his then current Base Salary until the Date of Termination and for one
         (1) year thereafter and shall also be entitled to receive any earned
         but unpaid Operational Incentive for any calendar quarter ending prior
         to the Date of Termination. In addition, if the Employee's employment
         is terminated without Cause, the entire remaining principal balance and
         all accrued and unpaid interest on the Existing Note and the Additional
         Note shall be forgiven by the Company and deemed paid as additional
         severance to the Employee.

                  (e) EXPIRATION OF TERM. If the Employee's employment shall be
         terminated by reason of expiration of the Term (irrespective of which
         party elected not to extend the Term), the Employee shall continue to
         receive installments of his then current Base

                                       7
<PAGE>   8

         Salary until the Date of Termination and the Company shall pay the
         Employee any earned Operational Incentive for the last calendar quarter
         of the Term.

                  (f) VOLUNTARY TERMINATION. If the Employee's employment shall
         be terminated pursuant to Section 4(e) hereof, the Employee shall
         continue to receive installments of his then current Base Salary until
         the Date of Termination and the Employee shall not be entitled to
         receive any Operational Incentive (other than any earned but unpaid
         Operational Incentive for any calendar quarter ending prior to the Date
         of Termination), and shall not be entitled to any severance payment of
         any nature.

                  (g) NO FURTHER OBLIGATIONS AFTER PAYMENT. After all payments,
         if any, have been made to the Employee pursuant to the applicable
         provisions of paragraphs (a) through (f) of this Section 5, the Company
         shall have no further obligations to the Employee under this Employment
         Agreement other than the provision of any employee benefit plan
         required to be continued under applicable law or by its terms.

         6. DUTIES UPON TERMINATION. Upon the termination of Employee's
employment hereunder for any reason whatsoever (including but not limited to the
failure of the parties hereto to agree to the extension of this Employment
Agreement pursuant to Section 1 hereof), Employee shall promptly (a) comply with
his obligation to deliver a Compliance Certificate as provided in Section 2(c)
hereof, and (b) return to the Company any property of the Company or its
subsidiaries then in Employee's possession or control, including without
limitation, any Confidential Information (as defined in Section 7(d)(iii)
hereof) and whether or not constituting Confidential Information, any technical
data, performance information and reports, sales or marketing plans, documents
or other records, and any manuals, drawings, tape recordings, computer programs,
discs, and any other physical representations of any other information relating
to the Company, its subsidiaries or affiliates or to the Business (as defined in
Section 7(d)(iv) hereof) of the Company. Employee hereby acknowledges that any
and all of such documents, items, physical representations and information are
and shall remain at all times the exclusive property of the Company.

         7. RESTRICTIVE COVENANTS.

                  (a) ACKNOWLEDGMENTS. Employee acknowledges that (i) his
         services hereunder are of a special, unique and extraordinary character
         and that his position with the Company places him in a position of
         confidence and trust with the operations of the Company, its
         subsidiaries and affiliates (collectively, the "Res-Care Companies")
         and allows him access to Confidential Information, (ii) the Company has
         provided Employee with a unique opportunity as the President of the
         Company's Division for Persons with Disabilities, (iii) the nature and
         periods of the restrictions imposed by the covenants contained in this
         Section 7 are fair, reasonable and necessary to protect and preserve
         for the Company the benefits of Employee's employment hereunder, (iv)
         the Res-Care Companies would sustain great and irreparable loss and
         damage if Employee were to breach any of such covenants, (v) the
         Res-Care Companies conduct and are aggressively pursuing the conduct of
         their business actively in and throughout the entire Territory (as
         defined in paragraph (d)(ii) of this Section 7), and (vi) the Territory
         is reasonably sized because the current Business of the Res-Care
         Companies is conducted throughout such geographical area, the Res-Care
         Companies are aggressively pursuing expansion and new

                                       8
<PAGE>   9

         operations throughout such geographic area and the Res-Care Companies
         require the entire Territory for profitable operations.

                  (b) CONFIDENTIALITY AND NON-DISPARAGEMENT COVENANTS. Having
         acknowledged the foregoing, Employee covenants that without limitation
         as to time, (i) commencing on the Commencement Date, he will not
         directly or indirectly disclose or use or otherwise exploit for his own
         benefit, or the benefit of any other Person (as defined in paragraph
         (d)(v) of this Section 7), except as may be necessary in the
         performance of his duties hereunder, any Confidential Information, and
         (ii) commencing on the Date of Termination, he will not disparage or
         comment negatively about any of the Res-Care Companies, or their
         respective officers, directors, employees, policies or practices, and
         he will not discourage anyone from doing business with any of the
         Res-Care Companies and will not encourage anyone to withdraw their
         employment with any of the Res-Care Companies.

                  (c) COVENANTS. Having acknowledged the statements in Section
         7(a) hereof, Employee covenants and agrees with the Res-Care Companies
         that he will not, directly or indirectly, from the Commencement Date
         until the Date of Termination, and for a period of eighteen (18) months
         thereafter, directly or indirectly (i) offer employment to, hire,
         solicit, divert or appropriate to himself or any other Person, any
         business or services (similar in nature to the Business) of any person
         who was an employee or an agent of any of the Res-Care Companies at any
         time during the last twelve (12) months of Employee's employment
         hereunder; or (ii) own, manage, operate, join, control, assist,
         participate in or be connected with, directly or indirectly, as an
         officer, director, shareholder, partner, proprietor, employee, agent,
         consultant, independent contractor or otherwise, any Person which is,
         at the time, directly or indirectly, engaged in the Business of the
         Res-Care Companies within the Territory. The Employee further agrees
         that from the Commencement Date until the Date of Termination, he will
         not undertake any planning for or organization of any business activity
         that would be competitive with the Business.

                  (d) DEFINITIONS. For purposes of this Employment Agreement:

                           (i) For purposes of this Section 7, "termination of
                  Employee's employment" shall include any termination pursuant
                  to paragraphs (b), (c), (d) and (e) of Section 4 hereof, the
                  termination of such Employee's employment by reason of the
                  failure of the parties hereto to agree to the extension of
                  this Agreement pursuant to Section 1 hereof or the voluntary
                  termination of Employee's employment hereunder.

                           (ii) The "Territory" shall mean the forty-eight (48)
                  contiguous states of the United States, the United States
                  Virgin Islands, Puerto Rico and all of the Provinces of
                  Canada.

                           (iii) "Confidential Information" shall mean any
                  business information relating to the Res-Care Companies or to
                  the Business (whether or not constituting a trade secret),
                  which has been or is treated by any of the Res-Care Companies
                  as proprietary and confidential and which is not generally
                  known or ascertainable through proper means. Without limiting
                  the generality of the

                                       9
<PAGE>   10

                  foregoing, so long as such information is not generally known
                  or ascertainable by proper means and is treated by the
                  Res-Care Companies as proprietary and confidential,
                  Confidential Information shall include the following
                  information regarding any of the Res-Care Companies:

                                    (1)     any patent, patent application,
                                            copyright, trademark, trade name,
                                            service mark, service name,
                                            "know-how" or trade secrets;

                                    (2)     customer lists and information
                                            relating to (i) any client of any of
                                            the Res-Care Companies or (ii) any
                                            client of the operations of any
                                            other Person for which operations
                                            any of the Res-Care Companies
                                            provides management services;

                                    (3)     supplier lists, pricing policies,
                                            consulting contracts and competitive
                                            bid information;

                                    (4)     records, operational methods and
                                            Company policies and procedures,
                                            including manuals and forms;

                                    (5)     marketing data, plans and
                                            strategies;

                                    (6)     business acquisition, development,
                                            expansion or capital investment plan
                                            or activities;

                                    (7)     software and any other confidential
                                            technical programs;

                                    (8)     personnel information, employee
                                            payroll and benefits data;

                                    (9)     accounts receivable and accounts
                                            payable;

                                    (10)    other financial information,
                                            including financial statements,
                                            budgets, projections, earnings and
                                            any unpublished financial
                                            information; and

                                    (11)    correspondence and communications
                                            with outside parties.

                           (iv) The "Business" of the Res-Care Companies shall
                  mean the business of providing youth treatment or services,
                  services to persons with mental retardation and other
                  developmental disabilities, including but not limited to
                  persons who have been dually diagnosed, services to persons
                  with acquired brain injuries, training services, or providing
                  management and/or consulting services to third parties
                  relating to the foregoing.

                           (v) The term "Person" shall mean an individual, a
                  partnership, an association, a corporation, a trust, an
                  unincorporated organization, or any other business entity or
                  enterprise.

                                       10
<PAGE>   11

                  (e) INJUNCTIVE RELIEF, INVALIDITY OF ANY PROVISION. Employee
         acknowledges that his breach of any covenant contained in this Section
         7 will result in irreparable injury to the Res-Care Companies and that
         the remedy at law of such parties for such a breach will be inadequate.
         Accordingly, Employee agrees and consents that each of the Res-Care
         Companies in addition to all other remedies available to them at law
         and in equity, shall be entitled to seek both preliminary and permanent
         injunctions to prevent and/or halt a breach or threatened breach by
         Employee of any covenant contained in this Section 7. If any provision
         of this Section 7 is invalid in part or in whole, it shall be deemed to
         have been amended, whether as to time, area covered, or otherwise, as
         and to the extent required for its validity under applicable law and,
         as so amended, shall be enforceable. The parties further agree to
         execute all documents necessary to evidence such amendment.

                  (f) ADVICE TO FUTURE EMPLOYERS. If Employee, in the future,
         seeks or is offered employment by any other Person, he shall provide a
         copy of this Section 7 to the prospective employer prior to accepting
         employment with that prospective employer.

         8. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Employment Agreement,
its Exhibits, the Existing Note, the Existing Loan Agreement, the Additional
Note and the Additional Loan Agreement constitute the entire agreement between
the parties pertaining to the subject matter contained in them and supersede all
prior and contemporaneous agreements, representations, and understandings of the
parties, including but not limited to the Prior Agreement. No supplement,
modification, or amendment of this Employment Agreement shall be binding unless
executed in writing by all parties hereto (other than by reason of the
prospective modification of the Incentive Program by the Company or as provided
in the next to last sentence of Section 7(e) hereof). No waiver of any of the
provisions of this Employment Agreement will be deemed, or will constitute, a
waiver of any other provision, whether or not similar, nor will any waiver
constitute a continuing waiver. No waiver will be binding unless executed in
writing by the party making the waiver.

         9. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Employment Agreement shall
be binding on, and inure to the benefit of, the parties hereto and their
respective heirs, executors, legal representatives, successors and assigns;
PROVIDED, HOWEVER, that this Employment Agreement is intended to be personal to
the Employee and the rights and obligations of the Employee hereunder may not be
assigned or transferred by him.

         10. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Employment Agreement, or
any other agreement executed in connection therewith, shall be in writing and
shall be deemed to have been given on the date of delivery personally or upon
deposit in the United States mail postage prepaid by registered or certified
mail, return receipt requested, to the appropriate party or parties at the
following addresses (or at such other address as shall hereafter be designated
by any party to the other parties by notice given in accordance with this
Section):

                                       11
<PAGE>   12

                  TO THE COMPANY:
                  --------------

                  ResCare, Inc.
                  10140 Linn Station Road
                  Louisville, Kentucky 40223
                  Attn:    Ronald G. Geary,
                           Chairman, President and Chief Executive Officer

                  TO THE EMPLOYEE:
                  ---------------

                  Jeffrey M. Cross
                  2810 Belknap Beach Road
                  Prospect, Kentucky 40059

         11. EXECUTION IN COUNTERPARTS. This Employment Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.

         12. FURTHER ASSURANCES. The parties each hereby agree to execute and
deliver all of the agreements, documents and instruments required to be executed
and delivered by them in this Employment Agreement and to execute and deliver
such additional instruments and documents and to take such additional actions as
may reasonably be required from time to time in order to effectuate the
transactions contemplated by this Employment Agreement.

         13. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of
any particular provision of this Employment Agreement shall not affect the other
provisions hereof and this Employment Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.

         14. GOVERNING LAW; JURISDICTION; VENUE. This Employment Agreement is
executed and delivered in, and shall be governed by, enforced and interpreted in
accordance with the laws of, the Commonwealth of Kentucky. The parties hereto
agree that the federal or state courts located in Kentucky shall have the
exclusive jurisdiction with regard to any litigation relating to this Employment
Agreement and that venue shall be proper only in Jefferson County, Kentucky, the
location of the principal office of the Company.

         15. TENSE; CAPTIONS. In construing this Employment Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice versa, and the captions contained in this Employment Agreement shall be
ignored.

         16. SURVIVAL. The provisions of Sections 5, 6 and 7 hereof shall
survive the termination, for any reason, of this Employment Agreement, in
accordance with their terms.

                                       12
<PAGE>   13

         IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the day and year set forth above.

                                           RES-CARE, INC.

                                           By:
                                               ---------------------------------
                                               Ronald G. Geary
                                               Chairman, President and Chief
                                               Executive Officer

                                           -------------------------------------
                                           Jeffrey M. Cross

                                       13

<PAGE>   14

                                    EXHIBIT A
                                    ---------

                          OPERATIONAL INCENTIVE PROGRAM
                              FOR JEFFREY M. CROSS

The following is the incentive plan for Jeffrey M. Cross, President of the
Division for Persons with Disabilities ("Cross"), for the year 2001.

The program is based on what the Company and Cross feel are the most important
controllables of Cross.

This part of the incentive is for specific operation performance. The amounts
here relate to Cross' eligibility. To be eligible, the target for the entire
Division (on average) must be met. If the operation does not hit financial
target, Cross is still eligible, but at a reduced rate, if within the identified
range.

<TABLE>
<CAPTION>

               --------------------------------------------------------------------------------------------
               Category
<S>                                                 <C>
               --------------------------------------------------------------------------------------------
               1. ResCare Quality Way               Documentation provided that program requirements were
                                                    implemented during the quarter in all of the
                                                    Division. (100% compliance required)
               --------------------------------------------------------------------------------------------
               2.  Best In Class                    85% average for entire Division (Q-1 & Q-2 2001)
                                                    95% average for entire Division (Q-3 & Q-4 2001)
                                                    75% average for entire Division (Q-3 on) on Level 2
               --------------------------------------------------------------------------------------------
               3.  External Reviews                 No punitive action enforced, no fines,
                                                    moratoriums, conditions of participation out or
                                                    vendor holds during quarter for the entire Division.
               --------------------------------------------------------------------------------------------
               4.  DSO                              Meet the cumulative number of all operations in the
                                                    Division for the quarter.
               --------------------------------------------------------------------------------------------
</TABLE>

Each category will contribute 25% toward the potential financial incentive.

The amount identified is: 50% of salary max. This will be calculated on a
quarterly basis, so the annual maximum would be 50% total for the year.

If the Division does not meet financial target, but is at 90% or better of
target, Cross is eligible for 40% of the maximum potential financial incentive.

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