Franchisees, Is It Fair?

So you bought a Hilton franchise because you believed that the Blackstone Group was a strong owner. Now, Blackstone has begun preparations for an initial public offering and has hired the Goldman Sachs Group, Bank of America's Merrill Lynch and Morgan Stanley to find appropriate buyers.

What recourse does a Hilton franchisee have? None at all.

While the franchisee can't sell his hotel without Blackstone's approval, Blackstone can sell the entire Hilton Corporation without the approval of its more than 4000 franchisees: (consisting of Hilton, Embassy Suites Hotels, DoubleTree, Hampton Inn, Hilton Garden Inn, Conrad, Homewood Suites, Home2Suites). It is hard to understand that these franchisees have no power to affect this sale. After all, most franchises are independently owned and operated by franchisees who have substantial wealth and means. Many of them are large companies who can afford to hire the best attorneys when necessary.

Yet the peculiarities of the franchisee/franchisor relationship provides no fiduciary duty on the part of the franchise companies. This unfair arrangement is not by accident or random circumstance. It has been carefully cultivated over the past fifty years by savvy and well-heeled franchise companies. They have systematically paid for the election of franchise-friendly state legislators and defeat of those who are franchisee-friendly. No wonder that most state laws barely recognize "good faith and fair dealings" (GFFD) in franchise agreements.

At the same time, many of these pro-franchise company state legislators have imposed no requirements for GFFD when the franchisor wants to sell the company. Blackstone is free to act in its own self-interest without regard for the consequences on individual franchisees.

When you read about Blackstone's plans in the trade press, you'd never know that there are franchisees involved. They are unmentioned in the news stories.

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