HERE Report Attacks Hampton Franchise Agreement

BEVERLY HILLS, CA— Hilton Hotels Corp.’s franchising policies have caught the eye of the industry’s ever-present union, the Hotel Employees and Restaurant Employees International (HERE), which has issued a report, entitled Beware, that directly attacks the Hampton Inn license agreement. The report came as a surprise to Hilton executives, according to Bill Fortier, svp/franchise development for Hilton. However, the HERE union, has apparently been after the Beverly Hills-based lodging giant for more than a year— evident in the launch of its website, www.youownhilton.com, which is meant to “educate” Hilton franchisees about their rights, said Richard Yeselson, senior research analyst for HERE. Interestingly, HERE’s members, about 265,000 property-level employees, are not in the business of franchising— most are housekeepers, maintenance staff, catering employees, etc. “We wanted to form an alliance with other Hilton stakeholders, the owners,” said Yeselson. “We don’t formerly represent any of them. This [report]is just a value-added service.” Hilton does not comprise the majority of HERE’s member base. In fact, according to Yeselson, about 17,000 union members are Hilton employees. This equates to the organization of about 26% of Hilton rooms, including nine out of the company’s 10 biggest properties (the exception being New Orleans). In terms of having the largest amount of unionized employees, Starwood Hotels & Resorts holds that position, followed by Hilton, then Marriott International. The majority of these employees are major city and convention center hotels, said Yeselson, not limited-service properties. In fact, “very few of our members are Hampton employees. Maybe none,” he said. This begs the question— then why go after Hampton? “We decided to take a look at franchising, and we started with Hilton. Hampton makes up the majority of their franchise business,” he said. When asked whether the union will soon move on to other hotel companies and launch websites such as youownmarriott.com or youowncarlson.com, Yeselson said, “We’re starting with Hilton and seeing how that goes….We may look at other companies eventually.” He added that, “We had a high union density with Hilton prior to their merger with Promus, and while it is not as high as it was before that merger, it remains fairly high.” After Hilton merged with Promus, said Yeselson, Hiltons business plan veered more heavily toward franchise operations. “Therefore, we decided we needed to understand that increasingly significant part of Hiltons business,” he explained. Specifically, HERE is attacking Hampton’s franchise agreement for eight key reasons: the possibility of changes to the license agreement, including being mandated to install new technology or FF&E renovations; franchising fees could be unilaterally increased by Hilton up to 9%; all hotel business and financial information that is shared with Hilton becomes property of Hilton and can be used for any purpose; the ability to sell a franchise is highly restricted; Hilton reserves the right to default on a franchise in the event of a violation of the franchise contract; termination fees are equal to three years of monthly royalty fees; special termination fees are particularly high if the franchisee defaults on two or more Hilton properties; and all legal disputes must be held in New York City. “They’re pulling things out of context in the license agreement,” explained Fortier. “We’re very strict to make sure the brand is consistent and managers follow our standards. We’re in the business of building brands, not just franchising for franchising’s sake.” So far Hilton has had “no reaction” from franchisees regarding the HERE report, and the two sides have not yet spoken, he added. “We don’t know what’s going to come of this. We don’t intend to change what we’re doing,” he stated. “Our brand is doing well, our numbers are good this year and people want to