EMPLOYMENT AGREEMENT

Exhibit 99.2

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made as of the 1st day of August, 2005 (the “Effective Date”), by and between Kindred Healthcare Operating, Inc., a Delaware corporation (the “Company”), and Benjamin A. Breier (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive is employed by the Company, a wholly-owned subsidiary of Kindred Healthcare, Inc. (“Parent”), and the parties hereto desire to provide for the terms of Executive’s employment by the Company; and

WHEREAS, the Company has determined that it is in the best interests of the Company to enter into this Agreement.

NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, and intending to be legally bound hereby, the Company and Executive agree as follows:

1. Employment. The Company hereby agrees to employ Executive and Executive hereby agrees to be employed by the Company on the terms and conditions herein set forth. The initial term of this Agreement shall be for a one-year period commencing on the Effective Date. The term shall be automatically extended by one additional day for each day beyond the Effective Date that the Executive remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such election to the Executive (the “Term”) specifying the effective date of such notice. In such event, the Agreement shall terminate on the first anniversary of the effective date of such election notice.

2. Duties. Executive is engaged by the Company as President-Peoplefirst Rehabilitation, reporting directly to Paul J. Diaz, President and Chief Executive Officer.

3. Extent of Services. Executive, subject to the direction and control of the Board of Directors of the Parent (the “Board”) and the Company, shall have the power and authority commensurate with his executive status and necessary to perform his duties hereunder. During the Term, Executive shall devote his entire working time, attention, labor, skill and energies to the business of the Company, and shall not, without the consent of the Company, be actively engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage.

4. Compensation. As compensation for services hereunder rendered, Executive shall receive during the Term:

(a) A base salary of $250,000 per year (“Base Salary”) payable in equal installments in accordance with the Company’s normal payroll procedures. Executive may receive increases in his Base Salary from time to time, as approved by the Board.

(b) In addition to Base Salary, Executive will be eligible to participate in the Company’s short-term and long-term incentive plans on a pro-rated basis for 2005 based on the Effective Date. Executive will be eligible to participate in the Company’s short-term incentive plan and long-term incentive plan in 2006, and in each subsequent full or partial year of employment. The Executive’s full-year target under the short-term incentive plan is 60% up to a maximum of 75% of Base Salary. The Executive’s full-year target under the long-term incentive plan is 45% up to a maximum of 90% of Base Salary.

5. Benefits.

(a) Executive shall be entitled to participate in any and all pension benefit (whether tax qualified or non-qualified), welfare benefit (including, without limitation, medical, dental, disability and group life insurance coverages) and fringe benefit plans from time to time in effect for officers of the Company and its affiliates following the Company’s standard waiting periods, if any. Until the time of eligibility, the Company will reimburse Executive for the difference between the cost of maintaining COBRA coverage under Executive’s present medical insurance plan and the cost of coverage under the medical plan selected by Executive as an employee of the Company.

(b) Executive shall be entitled to participate in such bonus, stock option, or other incentive compensation plans of the Company and its affiliates in effect from time to time for officers of the Company. At the next regularly scheduled meeting of the Board of Directors of the Parent, the Chief Executive Officer will recommend that Executive be granted 10,000 shares of restricted stock that will vest in equal annual installments over four years and 12,500 employee stock options that will vest over four years from the grant date and have a seven year life. These equity grants would be subject to the terms and conditions of the Kindred Healthcare, Inc. 2001 Stock Incentive Plan, Amended and Restated.

(c) Executive shall be entitled to earn paid time off each year up to a maximum of 208 hours per year, subject to the Company’s policies. The Executive shall schedule the timing of such paid time off in a reasonable manner.

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The Executive also may be entitled to such other leave, with or without compensation, as shall be mutually agreed by the Company and Executive.

(d) Executive may incur reasonable expenses for promoting the Company’s business, including expenses for entertainment, travel and similar items. The Company shall reimburse Executive for all such reasonable expenses in accordance with the Company’s reimbursement policies and procedures.

(e) The Company shall reimburse all reasonable travel and relocation expenses incurred by Executive in accordance with the Company’s Executive Committee Relocation Policy. As an exception to this policy, the Company will pay Executives’ monthly mortgage payment, up to a maximum of $3,500 per month, during the first three months of the term of this Agreement for any month during such period in which Executive maintains two residences. In the event Executive voluntarily terminates his employment with the Company without Good Reason within one year from Executive’s move date, Executive will reimburse the Company for a pro rata amount of Executive’s relocation expenses.

(f) With the Executive’s first regular paycheck, Executive will receive a one-time, sign-on bonus of $100,000. In the event Executive voluntarily terminates his employment with the Company without Good Reason within one year of the Effective Date, Executive will reimburse the Company the full amount of this bonus.

6. Termination of Employment.

(a) Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death during the Term. If the Company determines in good faith that the Disability of Executive has occurred during the Term (pursuant to the definition of Disability set forth below) it may give to Executive written notice of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean Executive’s absence from his full-time duties hereunder for a period of 90 days due to disability as defined in the long-term disability plan provided to Executive by the Company.

(b) Cause. The Company may terminate Executive’s employment during the Term for Cause. For purposes of this Agreement, “Cause” shall mean the Executive’s (i) conviction of or plea of nolo contendere to a crime involving moral turpitude; or (ii) willful and material breach by Executive of his duties and

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responsibilities, which is committed in bad faith or without reasonable belief that such breaching conduct is in the best interests of the Company and its affiliates, but with respect to (ii) only if the Board adopts a resolution by a vote of at least 75% of its members so finding after giving the Executive and his attorney an opportunity to be heard by the Board. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company.

(c) Good Reason. Executive’s employment may be terminated by Executive for Good Reason. “Good Reason” shall exist upon the occurrence, without Executive’s express written consent, of any of the following events:

(i) the Company shall assign to Executive duties of a substantially nonexecutive or nonmanagerial nature;

(ii) an adverse change in Executive’s status or position as an executive officer of the Company, including, without limitation, an adverse change in Executive’s status or position as a result of a diminution in Executive’s duties and responsibilities (other than any such change directly attributable to the fact that the Company is no longer publicly owned);

(iii) the Company shall (A) materially reduce the Base Salary or bonus opportunity of Executive, or (B) materially reduce his benefits and perquisites (other than pursuant to a uniform reduction applicable to all similarly situated executives of the Company);

(iv) the Company shall require Executive to relocate Executive’s principal business office more than 30 miles, provided that the Executive and the Company acknowledge that Executive’s principal business office is 680 South Fourth Street, Louisville, Kentucky 40202; or

(v) the failure of the Company to obtain the assumption of this Agreement as contemplated by Section 9(c).

For purposes of this Agreement, “Good Reason” shall not exist until after Executive has given the Company notice of the applicable event within 90 days of such event and which is not remedied within 30 days after receipt of written notice from Executive specifically delineating such claimed event and setting forth Executive’s intention to terminate employment if not remedied; provided, that if the specified event cannot reasonably be remedied within such 30-day period and the Company commences reasonable steps within such 30-day period