EMPLOYMENT AGREEMENT

Exhibit 10.5

EMPLOYMENT AGREEMENT

Senior Manager

THIS AGREEMENT by and among Foundation Coal Corporation, a Delaware corporation (the “ Company ”) and Michael R. Peelish (“ Executive ”) is entered into and effective dated as of January 1, 2009.

WHEREAS, the Company desires to continue the employment of Executive as a full-time employee of the Company and Executive desires to serve the Company in such capacity; and

WHEREAS, the Company and Executive desire to enter into an Employment Agreement to memorialize the terms and conditions of such employment;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and Executive hereby agree as follows:

1.         Term .  Subject to the provisions of Section 7 of this Agreement, Executive shall continue to be employed by the Company for a period commencing on the date hereof and ending on December 31, 2011 (the “ Employment Term ”) on the terms and subject to the conditions set forth in this Agreement; provided , however , that commencing on December 31, 2011 and on each anniversary thereafter (each an “ Extension Date ”), the Employment Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 60 days’ prior written notice before the next Extension Date that the Employment Term shall not be so extended.

2.         Position .  During the Employment Term, Executive shall serve as the Company’s Senior Vice President, Safety and Human Resources. In such position, Executive shall report directly to the Chief Executive Officer (the “ CEO ”) of the Company and shall have such duties and authority as shall be determined from time to time by the CEO. During the Employment Term, Executive will devote Executive’s full business time and best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the CEO; provided that nothing herein shall preclude Executive from (i) subject to the prior approval of the CEO (which shall not unreasonably be withheld), accepting appointment to or continuing to serve on any board of directors or trustees of any business or corporation, (ii) engaging in charitable activities and community affairs or (iii) managing his personal investments and affairs; provided that in each case, and in the aggregate, such activities do not conflict or interfere with the performance of Executive’s duties hereunder or conflict with the provisions contained in Section 9.

3.         Base Salary .  During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $229,000, payable in regular installments in accordance with the Company’s usual payment practices. Executive shall be entitled to increases (but not decreases) in Executive’s base salary, if any, as may be determined from time to time in the sole discretion of the Board of Directors of the Company (the

“ Board ”) and the Board shall be obligated to annually review Executive’s base salary for increases but not decreases. Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as the “ Base Salary .”

4.         Annual Bonus .  With respect to each full calendar year of the Company during the Employment Term, Executive shall be eligible to earn an annual bonus award (an “ Annual Bonus ”) based upon the achievement of certain individual and Company performance targets established by the Board, in consultation with the CEO (such targets to be established no later than 90 days following the beginning of the year in which they relate); provided that, Executive’s target Annual Bonus shall be not less than 65% of his Base Salary (the “ Target Annual Bonus ”). With respect to each full calendar year of the Company during the Employment Term, the amount of the Annual Bonus (if any) shall be paid as soon as practicable but no later than March 15 of the calendar year following the calendar year for which such Annual Bonus is earned.

5.         Employee Benefits .  During the Employment Term, Executive shall be entitled to participate in the Company’s employee benefit plans (other than annual bonus plans) as in effect from time to time (collectively “ Employee Benefits” ), on terms no less favorable than those generally made available to other senior executives of the Company. Executive will be provided paid vacation pursuant to the Vacation Summary Plan Description.

6.         Business Expenses .  During the Employment Term, reasonable travel and other expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Company in accordance with Company policies.

7.         Termination .  The Employment Term and Executive’s employment hereunder may be terminated by either party at any time and for any reason; provided that Executive will be required to give the Company at least 60 days’ advance written notice of any resignation of Executive’s employment. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern Executive’s rights upon termination of employment with the Company and its affiliates.

a.         By the Company For Cause or By Executive Resignation Without Good Reason .

(i)    The Employment Term and Executive’s employment hereunder may be terminated by the Company for Cause (as defined below) and shall terminate automatically upon Executive’s resignation without Good Reason (as defined in Section 7(c)(ii)).

(ii)    For purposes of this Agreement, “ Cause ” shall mean (A) Executive’s continued and willful, intentional or grossly negligent failure to substantially perform Executive’s duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness), (B) Executive’s conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, deceit, dishonesty or fraud that relates to the Company property, (C) the willful, intentional or grossly negligent conduct of Executive which is demonstrably and materially injurious to the Company, monetarily or otherwise or (D) Executive’s material breach of the

2

provisions of Sections 8 or 9 of this Agreement. For purposes of this definition of Cause, no act, or failure to act, on Executive’s part shall be deemed willful, intentional or grossly negligent if Executive acted in good faith and in a manner that Executive reasonably believed to be in, or not opposed to, the best interests of the Company.

(iii)    If Executive’s employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive:

(A)  the Base Salary through the date of termination;

(B)  any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year;

(C)  reimbursement for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to the date of Executive’s termination; and

(D)  such Employee Benefits, if any, as to which Executive may be entitled under the employee benefit plans of the Company (the amounts described in clauses (A) through (D) hereof being referred to as the “ Accrued Rights ”).

Following such termination of Executive’s employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in this Section 7(a)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

b.         Disability or Death .

(i)    The Employment Term and Executive’s employment hereunder shall terminate upon Executive’s death. If Executive becomes physically or mentally incapacitated so as to be unable to perform the essential functions of Executive’s duties (such incapacity is hereinafter referred to as “ Disability ”), then (A) the CEO may allow another officer of the Company to perform Executive’s duties and responsibilities during the period of such Disability, and (B) if such Disability continues for 120 consecutive days or 180 days during any consecutive 360 day period, the CEO may terminate Executive’s employment under this Agreement. If any question shall arise as to whether, during any period Executive is disabled so as to be unable to perform the essential functions of Executive’s then existing position or positions with or without reasonable accommodation, Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company, to whom Executive or Executive’s guardian has no reasonable objection, as to whether Executive is so disabled and how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Executive shall fail to submit such certification, the Company’s determination of such issue shall be binding on Executive. Nothing in this Section 7(b) shall be construed to waive Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1933, 29 U.S.C. ss.2601 et seq. and the Americans With Disabilities Act, 424 S.C. ss.12101 et seq.

3

(ii)    Upon termination of Executive’s employment hereunder for either Disability or death, Executive or Executive’s estate (as the case may be) shall be entitled to receive:

(A)  the Accrued Rights; and

(B)  Target Annual Bonus multiplied by a fraction, the numerator of which is the number of days of the calendar year of termination that shall have elapsed through the date of Executive’s termination of employment and the denominator of which is 365.

Following Executive’s termination of employment due to Disability or death, except as set forth in this Section 7(b)(ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

c.         By the Company Without Cause or Resignation by Executive for Good Reason .

(i)    The Employment Term and Executive’s employment hereunder may be terminated by the Company without Cause or by Executive’s resignation for Good Reason.

(ii)    For purposes of this Agreement, “ Good Reason ” shall mean (A) the failure of the Company to pay or cause to be paid Executive’s Base Salary or Annual Bonus, when due hereunder, (B) any substantial diminution in Executive’s authority or responsibilities from those described in Section 2 hereof, (C) the requirement by the Company that Executive’s principal office be located more than 50 miles outside of the greater Baltimore, Maryland metropolitan area, or (D) any failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the business or assets of the Company upon a merger, consolidation, sale or similar transaction (other than an assumption that occurs by operation of law); provided that any of the events described in clauses (A) through (D) of this Section 7(c)(ii) shall constitute Good Reason only if Executive provides written notice to the Company of the existence of any such event within 90 days of the initial existence of the event and the Company fails to cure such event within 30 days after receipt from Executive of such written notice.

(iii)    If Executive’s employment is terminated by the Company without Cause (other than by reason of death or Disability and other than any termination by the Company following the Company’s receipt of a Notice of Termination from Executive setting forth Executive’s intention to resign without Good Reason, as described in Section 7(a)(i)) or if Executive resigns for Good Reason, in either case whether or not such termination occurs in connection with a Change in Control, Executive shall be entitled to receive:

(A)  the Accrued Rights;

(B)  an amount equal to the Annual Bonus that Executive would have been entitled to receive in respect of the fiscal year in which Executive’s termination date occurs, had Executive continued in employment until the end of such fiscal year, which amount, determined based on the Company’s actual performance for such year relative to the performance goals applicable to Executive, shall be multiplied by a fraction (A) the numerator of which is the number of days in

4

such fiscal year through termination date and (B) the denominator of which is 365 and shall be payable in a lump sum payment at the time such bonus or incentive awards are payable to other participants; and

(C)  subject to Executive’s continued compliance with the provisions of Sections 8 and 9, an amount equal to the sum of (x) the Base Salary and (y) the Target Annual Bonus, payable in equal bi-monthly installments over the Restricted Period (as defined in Section 8) in accordance with the Company’s usual payroll practices; provided that the aggregate amount described in this clause (C) shall be reduced, but not below zero, by the present value of any other cash severance or cash termination benefits payable to Executive under any other plans, programs or arrangements of the Company or its affiliates, including, without limitation, any severance plan of the Company in which Executive is entitled to participate.

(iv)    Notwithstanding the foregoing in Section 7(c)(iii), if Executive would be entitled to receive aggregate severance payments and/or benefits under an applicable severance plan or policy of the Company (the “ Applicable Severance Policy ”) in effect at the time of Executive’s termination which are greater than the payments provided in Section 7(c)(iii), then Executive shall instead receive the payments and benefits provided by the Applicable Severance Policy and shall not be entitled to receive the payments provided in Section 7(c)(iii).

(v)    For purposes of this Agreement, “ Change in Control ” shall mean the consummation of any transaction (including any merger or consolidation), the result of which is that (i) any Group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or Person, as described in Section 8(a)(1), becomes the beneficial owner, directly or indirectly, of more than 25% of the voting securities of the Company or its successor entity, (ii) any Group or Person becomes the beneficial owner, directly or indirectly, of more than 50% of the voting securities of the Company or its successor entity or (iii) any Person becomes the beneficial owner, directly or indirectly, of all or substantially all of the assets of the Company or its successor entity.

(vi)    Following Executive’s termination of employment by the Company without Cause (other than by reason of Executive’s death or Disability) or by Executive’s resignation for Good Reason, in either case whether or not in connection with a Change in Control, and except as set forth in Section 7(c)(iii) or Section 7(c)(iv), as applicable, Executive shall have no further rights to any compensation or any other benefits under this Agreement.

d.         Expiration of Employment Term . Unless the parties otherwise agree in writing, continuation of Executive’s employment with the Company beyond the expiration of the Employment Term shall be deemed an employment at-will and shall not be deemed to extend any of the provisions of this Agreement and Executive’s employment may thereafter be terminated at will by either Executive or the Company; provided that the provisions of Sections 8, 9 and 10 of this Agreement shall survive any termination of this Agreement or Executive’s termination of employment hereunder.

e.         Notice of Termination .  Any purported termination of employment by the Company or by Executive (other than due to Executive’s death) during the Employment Term shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(i) hereof. For purposes of

5

this Agreement, a “ Notice of Termination ” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

f.         Board/Committee Resignation .  Upon termination of Executive’s employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from (i) any position as an officer of the Company and any of the Company’s affiliates, and (ii) the Board (and any committees thereof) and the board of directors of any of the Company’s affiliates (and any committees thereof).

8.       Non-Competition .

a.        Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees as follows:

(1)          During the Employment Term and for a period of nine months following the date Executive ceases to be employed by the Company for any reason (the “ Restricted Period ”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“ Person ”), directly or indirectly solicit or assist in soliciting in competition with the Company, the business of any customer of the Company or prospective customer of the Company:

(2)          During the Restricted Period, Executive will not directly or indirectly:

6

(3)          Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any Person engaged in the business of the Company or its affiliates which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 5% or more of any class of securities of such Person.

(4)          During the Employment Term and, for a period of two years following the date Executive ceases to be employed by the Company, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly: