Document:

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                                                                   EXHIBIT 10.16
                             EMPLOYMENT AGREEMENT
                             --------------------

          THIS AGREEMENT is made as of the 1/st/ day of March, 2000, by and
between SELECT MEDICAL CORPORATION, a Delaware corporation (the "Employer"), and
ROCCO A. ORTENZIO, an individual (the "Employee").

                             W I T N E S S E T H:
                             -------------------

          WHEREAS, the Employer wishes to ensure the continued services of the
Employee for the term of this Agreement, and the Employee desires to be employed
by the Employer for such term, upon the terms and conditions set forth below;

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

          Article 1.  CAPACITY AND DUTIES

          1.01.    Employment; Acceptance of Employment.  The Employer hereby
                   ------------------------------------
employs the Employee, and the Employee hereby accepts employment by the
Employer, subject to all the terms and conditions hereafter set forth.

          1.02.    Capacity.  Employee shall serve as Chairman of the Board and
                   --------
Chief Executive Officer of the Employer.

          1.03.    Duties.  During the term of this Agreement, the Employee
                   ------
shall devote his full attention and his best efforts to the performance of the
customary duties and responsibilities consistent with the Employee's position as
described in Section 1.02, and shall serve as an officer and a member of the
Boards of Directors of the Employer's parents, affiliates and subsidiaries to
which the Employee is appointed by the Employer's Board of Directors, without
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compensation other than that provided for in this Agreement; provided that
nothing herein shall be deemed to prevent the Employee from serving as a
director of other companies so long as such service does not unreasonably
interfere with the performance of the Employee's duties hereunder.

          Article 2.     TERM OF EMPLOYMENT; TERMINATION

          2.01.    Term.  Unless earlier terminated as hereafter provided, this
                   ----
Agreement shall commence on the date hereof and shall expire on the third
anniversary of such date, provided that at the end of each 12-month period after
the date hereof, unless either party gives written notice to the other not less
than three months prior to the end of such 12-month period that it or he does
not want the term of this Agreement to continue, such term shall thereafter
automatically extend for an additional period of one year (with the result that,
upon each anniversary of the date hereof, in the absence of such notice, the
term shall be three years in length) (such period, including extensions thereof,
being hereinafter referred to as the "Term").

          2.02.    Termination.
                   -----------

                    (a)  Death and Disability.  The employment of the Employee
                         --------------------
under this Agreement shall immediately terminate (i) upon the death of the
Employee and (ii) upon written notice to the Employee given by the Board of
Directors of the Employer, in the event that the Employee, in the reasonable
opinion of the Board of Directors, is for any reason during the period of his
employment hereunder unable to perform the duties to be performed by the
Employee as contemplated by Section 1.03 for a period of 120 consecutive days by
reason of the Employee's disability. The term "disability" as used in this
Section 2.02(a) means the inability because of physical or mental injury or
sickness to perform the substantial and material duties of

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the Employee hereunder. Upon a termination of employment described in this
Section 2.02(a), (i) the Employee or his estate or beneficiaries, as applicable,
shall be entitled to receive any base salary and other benefits earned and
accrued under this Agreement prior to the date of termination, (ii) any stock
options with respect to the Employer's stock held by the Employee at the time of
such termination shall become fully exercisable as of the date of such
termination and shall remain exercisable, by the Employee or his estate or
beneficiaries, as applicable, until the later of three months following the date
of such termination or the expiration date of such option, notwithstanding any
contrary vesting schedules otherwise applicable to such options, and (iii) the
Employee and his estate and beneficiaries shall have no further rights to any
other compensation or benefits, or any other rights, hereunder.

          (b)  Discharge for Cause.  The employment of the Employee under this
               -------------------
Agreement shall terminate immediately if the Board of Directors of the Employer
discharges the Employee for cause. For purposes of this Agreement, "cause" shall
mean: (i) the willful and continued failure by the Employee to substantially
perform his duties hereunder (other than any such failure resulting from the
Employee's incapacity due to physical or mental illness), (ii) the engaging by
the Employee in willful or reckless misconduct which is demonstrably and
materially injurious to Employer monetarily or otherwise, or (iii) the
conviction of the Employee of a felony involving moral turpitude. For purposes
of this Section 2.02(b), an act, or failure to act, on the Employee's part shall
be considered "willful" or "reckless" only if done, or omitted to be done, by
him not in good faith and without a reasonable belief that his action or
omission was in the best interest of the Employer. The Employee's employment
shall not be deemed to have been terminated for cause unless the Employer shall
have given or delivered to the Employee (i)

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reasonable notice setting forth the reasons for the Employer's intention to
terminate the Employee's employment for cause, (ii) an opportunity for the
Employee to cure any such breach during the 30-day period after the Employee's
receipt of such notice, (iii) a reasonable opportunity, at any time during the
30-day period after the Employee's receipt of such notice, for the Employee,
together with his counsel, to be heard before the Board of Directors, and (iv) a
Notice of Termination (as defined in Section 2.02(d)) stating that, in the good
faith opinion of not less than a majority of the entire membership of the Board
of Directors, the Employee was guilty of the conduct set forth in any of clauses
(i), (ii) or (iii) of the second sentence of this Section 2.02(b). If the
Employer terminates the Employee's employment for cause pursuant to this Section
2.02(b), (i) the Employer shall pay to the Employee any base salary and other
benefits earned and accrued under this Agreement prior to the termination of
employment, excluding any unpaid bonuses, whether or not earned or accrued, and
(ii) the Employee shall have no further rights to compensation or benefits, or
any other rights, hereunder.

          (c)  Good Reason.  The Employee's employment may be terminated by the
               -----------
Employee for good reason. For purposes of this Agreement, "good reason" shall
mean, unless otherwise consented to by the Employee:

               (i)  the assignment to the Employee of any duties inconsistent in
any material respect with the Employee's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities as
contemplated by Section 1.02 of this Agreement, or any other action by the
Employer which results in a material diminution or material adverse change in
such position, status, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad faith
and which

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is remedied within 15 days after receipt of the Notice of Termination given by
the Employee, which specifies the Employee's grounds for good reason; provided
that in order for such assignment or other action to constitute good reason
hereunder, the Employee must give or deliver to the Employer the Notice of
Termination, in accordance with Section 2.02(d), no later than 30 days after the
time at which the assignment or action purportedly giving rise to good reason
first occurs;

          (ii)  any failure by the Employer to comply with any of the provisions
of Article 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Employer within 15 days after receipt of the Notice of Termination given by the
Employee, which specifies the Employee's grounds for good reason; provided that
in order for such failure to constitute good reason hereunder, the Employee must
give or deliver to the Employer the Notice of Termination, in accordance with
Section 2.02(d), no later than 30 days after the time at which the failure
purportedly giving rise to good reason first occurs;

          (iii) the Employer's requiring the Employee to be based at any office
or location other than Mechanicsburg, Pennsylvania or within 25 miles of such
location; or

          (iv)  any failure by the Employer to comply with and satisfy Section
7.01 of this Agreement.

For purposes of this Section 2.02(c) any good faith determination of "good
reason" made by the Employee shall be conclusive.

          (d)   Notice of Termination.  Any termination of the Employee's
                ---------------------
employment, other than a termination by reason of death, shall be communicated
by Notice of

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Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision of this Agreement relied upon, (ii) if applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated, and (iii) specifies the termination date (which date shall, except as
otherwise expressly provided in this Article 2, be not more than 15 days after
the giving of such Notice). In the event of a termination by the Employer for
cause or a termination by the Employee for good reason, the Notice of
Termination shall not be effective unless preceded by satisfaction of the
procedural requirements set forth in Section 2.02(b) or 2.02(c) hereof, as
applicable.

          (e)  Certain Terminations.  The Employer may terminate the Employee's
               --------------------
employment hereunder at any time for any reason or for no reason by providing a
Notice of Termination in accordance with Section 2.02(d). If either (a) the
Employee's services are terminated by the Employer for any reason other than for
cause as defined in Section 2.02(b) hereof and other than due to death or
disability or (b) the Employee terminates his employment for good reason as
defined in Section 2.02(c) hereof: (i) the Employer shall pay to the Employee
any base salary and other benefits earned and accrued under this Agreement prior
the date of termination, (ii) the Employer shall pay to the Employee a pro-rated
bonus for the year of termination in an amount equal to the product of (A) the
target bonus established with respect to the Employee for such year, or if no
such target is established the bonus paid or payable to the Employee for the
year prior to the year of termination, multiplied by (B) a fraction, the
numerator of which is the number of days in the year of termination completed
prior to such termination and the denominator of which is 365; provided that if
a target bonus had been

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established with respect to the year of termination, a pro-rated bonus shall be
payable pursuant to this Section 2.02(e)(ii) only if the performance goals
established with respect to such target bonus have been achieved by the date the
bonus would have been paid in the absence of the Employee's termination of
employment, (iii) the Employer agrees that such termination would not be
voluntary or a termination "for cause" as contemplated by any stock option or
other incentive plans and any stock option or other award agreements entered
into between the Employer and the Employee (including agreements that may be
entered into after the date hereof), and that any stock options with respect to
the Employer's stock held by the Employee shall become fully exercisable as of
the date of such termination and shall remain exercisable until the later of
three months following the date of such termination or the expiration date of
such option, notwithstanding any contrary vesting schedules otherwise applicable
to such options, (iv) the Employer will continue to pay the Employee, for the
balance of the Term, his base salary as of the date of such termination, and (v)
the Employee shall have no further rights hereunder. Such continued payments
will be made at the times and in the manner they would have been made to the
Employee in the absence of such termination.

                           Article 3.   COMPENSATION

          3.01.  Cash Compensation.  During the period of the Employee's
                 -----------------
services hereunder, as compensation for such services to the Employer pursuant
to this Agreement, the Employer shall pay to the Employee a base salary of
$500,000 per year in equal bi-weekly installments. The Board of Directors of the
Employer may, in its sole discretion from time to time, increase the base
compensation to be paid to the Employee as provided in this Article 3.

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The Employee will also be eligible to receive bonus compensation, annual or
otherwise, in an amount to be determined by the Employer's Board of Directors in
its sole discretion.

          3.02.  Stock Options.  The Employee will be eligible to receive such
                 -------------
stock options as the Employer's Board of Directors may grant to him from time to
time pursuant to the Employer's stock option plan, on terms and conditions
consistent with such plan.

          3.03.  Disability Insurance.  The Employer shall provide the
                 --------------------
Employee with long-term disability insurance coverage such that in the event the
Employee's employment by the Employer is terminated pursuant to Section 2.02(a)
due to the Employee's disability, the Employee will be entitled to receive
salary continuation payments at the rate of 100% of the Employee's annual base
salary as of the date of such termination, such payments to commence from the
date of such termination and to continue until the earlier of the tenth
anniversary of the date of such termination, or the date on which the Employee
is physically able to become gainfully employed in any occupation reasonably
consistent with his education, training and experience.

          3.04.  Vacation.  The Employee shall receive six (6) weeks paid
                 --------
vacation per year, such vacation to be taken when and as desired by the
Employee. Any time spent by the Employee at professional meetings, instructional
courses and other meetings of like nature so as to better enable the Employee to
perform professional services in the employ of the Employer shall not be
considered vacation time.

          3.05.  Other Compensation and Benefits Generally.  In addition to
                 -----------------------------------------
the foregoing, the Employee shall be permitted during the period of his
employment hereunder to participate in any group life, hospitalization or
disability insurance plans, health programs, retirement plans,

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fringe benefit programs and similar benefits that may be available to other
senior executives of the Employer generally, on the same terms and conditions as
such other executives, in each case to the extent that the Employee is eligible
under the terms of such plans or programs.

          3.06.  Expenses.  The Employer shall pay or reimburse the Employee
                 --------
for all ordinary and reasonable out-of-pocket expenses actually incurred (and,
in the case of reimbursement, paid) by the Employee in the performance of the
Employee's services under this Agreement; provided that the Employee submits
proof of such expenses, with the properly completed forms as prescribed from
time to time by the Employer in accordance with the Employer's policies and
procedures.

                         Article 4. CERTAIN COVENANTS

          4.01.  Noncompetition.  During the period of the Employee's
                 --------------
employment hereunder and for two years thereafter, the Employee shall not accept
employment with any employer in competition with, nor engage in any activities
in competition with, the business of the Employer or any of its affiliates if
such employment or activities are carried on within a twenty-five-mile radius of
any hospital or outpatient rehabilitation clinic now or hereafter managed by the
Employer or any of its affiliates or owned by the Employer or any of its
affiliates to the extent of more than 5% of the equity thereof. In addition,
this Section 4.01 shall not prevent the Employee from acquiring as a passive
investor up to 5% of the equity of a competing enterprise so long as the
Employee does not participate in the management thereof.

          4.02.  Confidentiality.  The Employee covenants and agrees that he
                 ---------------
will not, to the detriment of the Employer, at any time during or after the
termination of his employment hereunder, reveal, divulge or make known to any
person (other than the Employer or its officers,

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employees or agents who need to know such information, or as a result of legal
process) or use for his own account or the account of any other person any
confidential or proprietary records, data, trade secrets, customer lists or any
other confidential or proprietary information whatsoever (the "Confidential
Information") used by the Employer and made known (whether or not with the
knowledge and permission of the Employer, and whether or not developed, devised
or otherwise created in whole or in part by the efforts of the Employee) to the
Employee by reason of his association with the Employer. The Employee further
covenants and agrees that he shall retain all such knowledge and information
which he shall acquire or develop respecting such Confidential Information in
trust for the sole benefit of the Employee and its successors and assigns.

          4.03.  Nonsolicitation.  The Employee covenants and agrees that,
                 ---------------
during the period of the Employee's employment hereunder and for a period of one
year after the termination thereof, he will not whether for his own account or
for the account of any other person, firm, corporation or other business
organization intentionally interfere with the Employer's relationship with, or
endeavor to entice away from the Employer, any person who is, or was at any time
during the one-year period preceding the end of such term, employed by or
associated with the Employer in an executive, managerial or sales capacity.

          4.04.  Property of the Employer.  All written materials, records and
                 ------------------------
documents made by the Employee or coming into his possession concerning the
business or affairs of the Employer shall be the sole property of the Employer
and, upon the termination of the Employee's employment hereunder or upon request
of the Employer at any time, the Employee shall promptly deliver the same to the
Employer and shall retain no copies thereof.

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          4.05.  Enforcement; Remedies.  The Employee acknowledges and agrees
                 ---------------------
that any breach by him of any of the provisions of Sections 4.01 through 4.04
(the "Restrictive Covenants") would result in irreparable injury and damage for
which money damages would not provide an adequate remedy. Therefore, if the
Employee breaches, or threatens to commit a breach of, any of the Restrictive
Covenants, the Employer shall have the right and remedy (upon compliance with
any necessary prerequisites imposed by law upon the availability of such
remedy), which shall be independent and severally enforceable, and which shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Employer under law or in equity (including, without limitation, the
recovery of damages), to have the Restrictive Covenants specifically enforced
(without posting bond and without the need to prove damages) by any court having
equity jurisdiction, including, without limitation, the right to an entry
against the Employee of restraining orders and injunctions (preliminary,
mandatory, temporary and permanent) against violations, threatened or actual,
and whether or not then continuing, of such covenants. The existence of any
claim or cause of action by the Employee, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement of the
Restrictive Covenants.

          4.06.  In General.  If any decisionmaker determines that any of the
                 ----------
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, the duration or scope of such
provision, as the case may be, shall be reduced so that such provision becomes
enforceable and, in its reduced form, such provision shall then be enforceable
and shall be enforced. The parties hereto understand that each of the covenants
of the

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Employee contained in this Article 4 is an essential element of this Agreement.
The Employee's obligations under this Article 4 shall survive the termination of
this Agreement.

                         Article 5. CHANGE OF CONTROL

          5.01.  Payment Due.
                 -----------

                 (a)  Certain Terminations Following a Change of Control.  If,
                      --------------------------------------------------
during the Term, there should be a Change of Control (as defined in Section
5.02), and within the one-year period immediately following the Change of
Control the Employee's employment with the Employer (i) is terminated by the
Employer without cause as defined in Section 2.02(b), or (ii) is terminated by
the Employee for any reason, then on or before the Employee's last day of
providing services hereunder, in lieu of any other rights to cash compensation
he may have under this Agreement which have not accrued by such date, including
any compensation pursuant to Section 2.02(e), (A) the Employer will pay to the
Employee any base salary and other benefits earned and accrued under this
Agreement, (B) the Employer will pay to the Employee a lump sum cash payment
equal to his total cash compensation for base salary and bonus for the
immediately preceding three completed calendar years (or equal to three times
his average total annual cash compensation for base salary and bonus for his
years of service to the Employer, if less than three years), (C) the Employer
agrees that such termination would not be voluntary or a termination "for cause"
as contemplated by any stock option or other incentive plans and any stock
option or other award agreements entered into between the Employer and the
Employee (including agreements that may be entered into after the date hereof),
and that all unvested, unexercised stock options to purchase stock of the
Employer held by the Employee shall become fully vested and exercisable as of
the date of such termination, and the Employee will have the

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right to exercise, at any time prior to the later of three months after the date
of termination or the expiration date of such option, notwithstanding any
contrary vesting schedule otherwise applicable to such options, and (D) the
Employee shall have no further rights to compensation or benefits, or any other
rights, hereunder.

          (b)  Certain Termination Prior to a Change of Control.  If (i) the
               ------------------------------------------------
Employee's employment is terminated by the Employer other than for cause during
the Term, (ii) within the one-year period following such termination, a Change
of Control occurs, and (iii) the Employee reasonably demonstrates that such
termination of employment was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control, then within 10 days
of such Change of Control, in lieu of any other rights to cash compensation the
Employee may have under this Agreement which have not accrued by such date,
including any compensation pursuant to Section 2.02(e), the Employer shall
provide to the Employee all of the compensation and benefits described in
clauses (B) and (C) in Section 5.01(a), provided that the payment described in
such clause (B) shall be reduced by the total of any and all payments made to
the Employee pursuant to Section 2.02(e) hereof, and the Employee shall have no
further rights to compensation or benefits, or any other rights, hereunder.

          5.02.  Definition of Change of Control.
                 -------------------------------

                 (a) Prior to a Public Offering.  Subject to Section 5.02(c)
                     --------------------------
below, a "Change of Control" shall be deemed to have occurred, prior to a Public
Offering (as defined below), upon (i) any sale, lease, exchange or other
transfer of all or substantially all of the property and assets of the Employer
(on a consolidated basis) to an entity, other than an entity at least 75% of the
combined voting power of the voting securities of which are owned by persons

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in substantially the same proportion as their ownership of the Employer
immediately prior to such sale or other transfer, (ii) any merger or
consolidation to which the Employer is a party and as a result of which the
holders of the voting securities of the Employer immediately prior thereto own
less than a majority of the outstanding voting securities of the surviving
entity immediately following such transaction, or (iii) any person's (excluding
WCAS, GTCR and Thoma Cressey Partners, the financial sponsors of the Employer as
of the date hereof), including a group's, becoming the beneficial owner of
securities representing more than 50% of the voting securities of the Employer
then outstanding.

          (b)  Following a Public Offering.  Subject to Section 5.02(c) below, a
               ---------------------------
"Change of Control" shall be deemed to have occurred if, following a Public
Offering, (i) any person including a group, but excluding any stockholder of the
Employer who immediately prior to the Public Offering beneficially owned 12% or
more of the Employer's outstanding shares, becomes the beneficial owner of
shares of the Employer having more than 50% of the total number of votes that
may be cast for the election of directors of the Employer, (ii) any person
including a group, other than the Employee, or any group of which the Employee
is a party, increases its beneficial ownership of shares of the Employer beyond
such person's ownership immediately after the Public Offering by a number of
shares equal to or greater than 33% of the total number of votes that may be
cast for the election of directors; (iii) the individuals who serve on the Board
of Directors of the Employer as of the effective date hereof (the "Incumbent
Directors") cease for any reason to constitute at least a

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majority of the Board of Directors of the Employer; provided, however, any
person who becomes a director subsequent to the effective date hereof, whose
election or nomination for election was approved by a vote of at least a
majority of the directors then constituting the Incumbent Directors, shall for
purposes of this clause (iii) be considered an Incumbent Director, (iv) the
consummation of a merger or consolidation of the Employer in which the
stockholders of the Employer immediately prior to such merger or consolidation,
would not, immediately after the merger or consolidation, beneficially own,
directly or indirectly, shares representing in the aggregate more than 50% of
the combined voting power of the voting securities of the corporation issuing
cash or securities in the merger or consolidation (or of its ultimate parent
corporation, if any); or (v) there is consummated an agreement for the sale or
disposition by the Employer of all or substantially all of the Employer's assets
(on a consolidated basis), other than a sale or disposition by the Employer of
all or substantially all of the Employer's assets to an entity, at least 50% of
the combined voting power of the voting securities of which are owned by persons
in substantially the same proportion as their ownership of the Employer
immediately prior to such sale.

          (c)  Minimum Consideration.  Notwithstanding the foregoing, in no
               ---------------------
event shall a "Change of Control" be deemed to occur for purposes of this
Agreement, whether prior to or following a Public Offering, unless the total
consideration for the transaction or transactions which would, absent this
paragraph (c) constitute a Change of Control, has a value that is equal to or
greater than $3.75 per share of common stock of the Employer (the "Minimum
Value"); provided that such Minimum Value shall be adjusted to reflect changes
to such common stock in the event of a stock dividend, stock split, reverse
stock split, stock combination, reclassification, recapitalization, or other
similar change in the structure or capitalization of the Employer, or any other
event which in the discretion of the Board of Directors of the Employer
necessitates such an adjustment.

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          (d)  Certain Definitions.  For purposes of this Section 5.02, (i) the
               -------------------
terms "person," "group," "beneficial owner," and "beneficially own" have the
same meanings as such terms under Section 13(d) of the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder, (ii)
the term 'Public Offering" shall mean the consummation of the first public
offering of shares of common stock of the Employer in a firm commitment
underwritten offering registered under the Securities Act of 1933, as amended,
on Form S-1 or its successor forms, and (iii) the term "voting securities" mean
securities, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect the corporate directors (or persons performing
similar functions).

                    Article 6. CERTAIN ADDITIONAL PAYMENTS

          6.01.  If all, or any portion, of the payments or other benefits
provided under any section of this Agreement (including, without limitation,
Sections 2 and 5 hereof), either alone or together with other payments and
benefits which the Employee receives or is entitled to receive from the Company
or its affiliates, (whether or not under an existing plan, arrangement or other
agreement) (collectively the "Payments") would constitute an excess "parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and would result in the imposition on the Employee
of an excise tax under Section 4999 of the Code, (such excise tax, together with
any interest and penalties related thereto, are hereinafter collectively
referred to as the "Excise Tax") then, in addition to any other benefits to
which the Employee is entitled under this Agreement, the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in cash, in an
amount such that after payment by the Employee of all taxes including, without
limitation, (i) any income taxes (and any interest

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and penalties imposed with respect thereto) and (ii) any Excise Tax, imposed
upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Unless the Employer
and the Employee otherwise agree in writing, any determination required under
this Article 6, including without limitation, the amount of payments under this
Article 6 (the "Parachute Gross-up") shall be computed and made in writing by
the Employer's then independent public accountants (the "Accountants"), whose
determination shall be, subject to the Employee's reasonable approval of the
calculations required under this Article 6, conclusive and binding upon the
Employee and the Employer for all purposes. For purposes of making the
calculations required by this Article 6, the Accountants may rely on reasonable,
good faith interpretations concerning the application of Section 280G and 4999
of the Code. The Employee and the Employer shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Article 6. The Employer shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Article 6.

          6.02.  As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination' by the Accountants
hereunder, it is possible that (i) Gross-Up Payments which will not have been
made by the Company should have been made (an "Underpayment"), consistent with
the calculations required to be made hereunder or that (ii) Gross-Up Payments
that have been made will be determined to have been in excess of the Gross-Up
Payments actually required (an "Overpayment"). In the event that the Employee is
required to make a payment of any Excise Tax, the Accountants shall determine
the amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the

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Company to or for the benefit of the Employee. In the event that it is finally
determined that an Overpayment has occurred, the Employee shall promptly, and in
any event within 30 days of such determination, refund the amount of the
Overpayment, plus any interest actually paid to the Employee with respect to the
Overpayment, to the Company. The Company shall have the right with respect to
the determination of either an Underpayment or an Overpayment to require the
Employee to appeal the assertion of any Underpayment or to claim, and sue for, a
refund of any Excise Tax paid by the Employee upon any Payment or Gross-Up
Payment, provided that the Company shall promptly reimburse the Employee for all
expenses, including counsel and accounting fees, incurred in connection with any
such proceeding. Alternatively, the Company may undertake any such proceeding,
and the Employee shall cooperate with the Company in any such proceeding.

                           Article 7.  MISCELLANEOUS

          7.01.  Assignment and Successors.  This Agreement shall not be
                 -------------------------
assignable by the Employee; and shall be assignable by the Employer only to a
person, firm or corporation which may become a successor in interest to the
Employer with respect to the business or a substantial portion of the business
presently operated by it. The Employer will require any purchaser of all or
substantially all of the assets of the Employer to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform if no such purchase had taken place. As
used in this Agreement, the Employer shall mean the Employer as hereinbefore
defined and any purchaser of its assets as aforesaid which executed and delivers
the agreement provided for herein.

                                      -18-
<PAGE>

          7.02.  Release.  Upon payment of any amount required under Section
                 -------
2.02(e) or Section 5.01 hereof, the Employee shall deliver to the Employer a
general release of liability of the Employer and its officers and directors in a
form reasonably satisfactory to the Employer.

          7.03.  Withholding.  All payments made pursuant to this Agreement
                 -----------
shall be subject to withholding of applicable deductions and income and
employment taxes.

          7.04.  Entire Agreement.  This writing represents the entire
                 ----------------
agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements, written or oral, with respect
thereto. This Agreement may not be altered or amended except by an agreement in
writing.

          7.05.  Binding Effect.  Subject to Section 7.01, this Agreement
                 --------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, executors and administrators. If any
provision of this Agreement shall be or become illegal or unenforceable in whole
or in part for any reason whatsoever, the remaining provisions shall
nevertheless be deemed valid, binding and subsisting.

          7.06.  Notices.  Any notice or other communication required or
                 -------
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails to the following addresses:

          If to Employee:

          Rocco A. Ortenzio
          7 Westwind Drive
          Lemoyne, PA 17043

                                      -19-
<PAGE>

          If to the Employer:

          Select Medical Corporation
          4718 Old Gettysburg Road
          Mechanicsburg, PA 17055
          Attention:  General Counsel

          7.07.  Waivers and Amendments.  This Agreement may be amended,
                 ----------------------
superseded, canceled, and the terms hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. Except as expressly provided herein, no delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege nor any single or partial exercise of any such right,
power or privilege, preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege.

          7.08.  Governing Law.  This Agreement has been negotiated and executed
                 -------------
within the Commonwealth of Pennsylvania, and the validity, interpretation and
enforcement of this Agreement shall be governed by the laws of Pennsylvania.

          7.09.  Headings.  The headings of paragraphs in this Agreement are
                 --------
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.

                                      -20-
<PAGE>

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

                         SELECT MEDICAL CORPORATION, a Delaware corporation

                         By: /s/ Michael E. Tarvin
                            ----------------------------------
                              Michael E. Tarvin,
                              Senior Vice President

                          /s/ Rocco A. Ortenzio
                         -------------------------------------
                              Rocco A. Ortenzio

                                      -21-<PAGE>

                                                                   EXHIBIT 10.17

                               AMENDMENT No. 1 TO
                              EMPLOYMENT AGREEMENT
                              --------------------

     This is an Amendment, dated August 8, 2000 (the "Amendment") to the
Employment Agreement made as of the 1st day of March, 2000 (the "Employment
Agreement") by and between SELECT MEDICAL CORPORATION, a Delaware corporation
(the "Company"), and ROCCO A. ORTENZIO, an individual (the "Employee").

                                   Background
                                   ----------

     The Company and the Employee executed and delivered the Employment
Agreement. The Company and the Employee now desire to amend the Employment
Agreement as hereinafter provided.

     Accordingly, and intended to be legally bound hereby, the Company and the
Employee agree as follows:

                                   Agreement
                                   ---------

     1. Effective as of the first of the Company's payroll periods beginning
after the Refinancing Date (as defined in paragraph 3 of this Amendment), the
Employee's base salary under Section 3.01 of the Employment Agreement shall be
increased to $800,000.

     2. Effective upon the Refinancing Date, the Employment Agreement is hereby
amended by addition of the following new Section 3.07:

        "3.07 Split Dollar Life Insurance. Provided that the Employee is then
              ---------------------------
employed by the Company, and that the conditions of subsections a. through d.
below are satisfied, the Company will pay premiums on the life insurance
policies held in the Rocco A. Ortenzio Irrevocable Trust under deed of trust
dated October 10, 1987, of which Michael E. Salerno ("Trustee") is trustee
("Employee's Insurance Trust"), as follows:

              (1) during the year 2000, the Company will pay a total of
$750,000, plus;

              (2) during each of the nine calendar years beginning with the year
2001, the amount of $1,250,000; provided that:

              a.  Split Dollar Agreement. The Trustee of Employee's Life
                  ----------------------
Insurance Trust shall have entered into a split dollar agreement with Company,
substantially in the form attached as Exhibit 1 to this Amendment pursuant to
which the Company is entitled to be repaid the aggregate amount of the premiums
paid under this Section 3.07 within 60 days following the earlier of the
surrender of the life insurance policies with respect to which the Company has
paid premiums, or the death of the Employee. If some, but fewer than all of such
<PAGE>

policies are surrendered, the Company will be entitled to be repaid that
percentage of the aggregate premiums paid hereunder that the cash value received
upon such surrender is of the total cash value of the policies upon with the
Company has paid premiums hereunder.

          b. Collateral Assignment. The Trustee of Employee's Life Insurance
             ---------------------
Trust shall have entered into a collateral assignment with respect to each
policy upon which the Company is to pay premiums, substantially in the form
attached as Exhibit 2 to this Amendment, pursuant to which the obligation to
repay the Company the premiums paid by it, as described in paragraph a. above,
will be secured.

          c. Delivery to Insurance Company. The Trustee of Employee's Life
             -----------------------------
Insurance Trust shall provide the Company with evidence, reasonably satisfactory
to the Company, that the collateral assignments described in paragraph b above
have been delivered to and received by each insurance company issuing any policy
which is the subject of such a collateral assignment.

          d. Assurances to Company. The Employee and the Trustee of Employee's
             ---------------------
Life Insurance Trust shall have delivered to the Company assurances, reasonably
satisfactory to the Company, that the cash values of the insurance policies on
which the Company is to pay premiums hereunder, net of any policy loans or other
encumbrances that exist with respect to such policies, are sufficient, or will
be immediately following the payment of such premiums, to discharge the
obligation to repay the Company the aggregate amount of premiums paid by it in
the event of the surrender of those policies by the Employee or the Trustee of
Employee's Life Insurance Trust."

     3. For purposes of the Employment Agreement, as amended by Amendment No. 1,
the term "Refinancing Date" shall mean the first date upon which:

        a. the Company has closed the refinancing of its Second Amended and
Restated Credit Agreement dated as of November 19, 1999, to the reasonable
satisfaction of the Company; and

        b. after that refinancing has been accomplished, the debt created
thereby is solely that of the Company (and its subsidiaries) and no shareholder
or other investor in the Company guarantees or is otherwise directly obligated
to repay that debt.

     4. Survival. The obligation to repay the Company the aggregate amount of
        --------
premiums paid by under Section 3.07 of the Employment Agreement as amended by
this Amendment No. 1, shall survive the termination of the Employment Agreement
until the Company has fully recovered the aggregate amount of the premiums paid
by it as described in this Section 3.07.

     5. Except as amended hereby, the Employment Agreement shall continue in
effect in accordance with its terms.

                                      -2-
<PAGE>

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

                                            SELECT MEDICAL CORPORATION

Attest: /s/ Michael E. Tarvin               By: /s/ Scott A. Romberger
       ---------------------------             ---------------------------
         Michael E. Tarvin,                       Scott A. Romberger,
         Secretary                                Vice President and Controller

Witness: [ILLEGIBLE]                            /S/ Rocco A. Ortenzio     (SEAL)
       ---------------------------             ---------------------------
                                                    Rocco A. Ortenzio

                                      -3-

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