EXHIBIT 10.39

                              EMPLOYMENT AGREEMENT
              AMONG EQUITY INNS SERVICES, INC ., EQUITY INNS, INC.
                              AND DONALD H. DEMPSEY

         THIS EMPLOYMENT AGREEMENT (this "Agreement"),  effective as of July 20,
1998, is by and among EQUITY INNS SERVICES,  INC., a Tennessee  corporation (the
"Company"), EQUITY INNS, INC., a Tennessee corporation (the "Parent") and DONALD
H. DEMPSEY (the "Executive").


                                R E C I T A L S :

         The  Company  is a  Tennessee  corporation  which  provides  management
services to the Parent pursuant to a management  services  agreement dated as of
December 30, 1994.

         The  Parent  is  a  Tennessee  corporation  which  is  organized  as  a
self-advised equity real estate investment trust.

         Each of the Parent and the Company  desire to employ the  Executive  to
serve as the Executive Vice President,  Secretary, Treasurer and Chief Financial
Officer of each of the Parent and the Company.

         The Executive desires to be so employed on the terms and subject to the
conditions hereinafter stated.

         NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:

         1.  Employment.  Each of the Parent and the  Company  shall  employ the
Executive,  and the  Executive  agrees  to be so  employed  in the  capacity  of
Executive Vice President,  Secretary,  Treasurer and Chief Financial  Officer of
each  of the  Parent  and  the  Company,  to  serve  for the  Term,  as  defined
hereinbelow, subject to earlier termination as hereinafter provided.

         2. Term. The term of the Executive's  employment hereunder (the "Term")
shall be for a period  commencing on the date of this  Agreement and  continuing
for a period of two (2) years until July 20, 2000, unless terminated  earlier as
provided herein.

         3.  Services.  The  Executive  shall devote such amount of his time and
attention to the Parent's and the Company's  affairs as are necessary to perform
his duties  hereunder.  Specifically,  the Executive  shall have complete senior
management authority and responsibility with respect to





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the  day-to-day  operations of each of the Parent's and the Company's  financial
staff and personnel, as well as implementation of the financial strategy of each
of the Parent and the Company,  consistent  with  directions from the respective
Board of Directors. He shall have full authority and responsibility,  subject to
the general  direction,  approval  and control of each of the  Parent's  and the
Company's  Board of Directors for  formulating  policies and  administering  the
Parent  and  its  financial  policies  and  strategies  in all  respects  and to
negotiate  for  and  cause  the  Parent  and  the  Company  to  undertake  other
activities,  agreements and programs at the direction of the respective Board of
Directors.

         4.  Compensation.  (a)  During  the  Term,  the  Company  shall pay the
Executive for his services an annual base salary ("Base  Salary") of Two Hundred
Seventy Thousand Dollars ($270,000.00),  to be paid in equal payments bi-weekly,
subject to any  increases in base  compensation  as may be approved by the joint
Compensation Committee of the Parent's and the Company's Board of Directors (the
"Compensation Committee").

         (b)  In addition to the annual base salary  described  in Section (a)
above, the  Executive  (i) will be eligible for a guaranteed bonus in the amount
of at least Fifty Thousand Dollars ($50,000) for the Company's fiscal year ended
December 31, 1998, subject to approval of the bonus program under  consideration
as of the date of this  Agreement by the Board of Directors,  at the rate of 25%
if the minimum performance goals are attained,  50% if the targeted  performance
goals are attained,  and 100% if the maximum performance goals are attained, and
(ii) may be eligible  for annual  bonuses  for all  subsequent  fiscal  years in
accordance  with such policies,  rules and criteria as may be established by the
Compensation Committee, in its sole discretion.

         (c) The Executive  shall  receive,  as a condition of his  employment,
(i) 20,000 restricted shares of the Company's common stock, $.01 par value (the"
Common Stock"),  with a date of grant of July 20, 1998 (the "Date of Grant") and
with such  restricted  shares vesting at the rate of 4,000 shares per year, with
the first  increment being  immediately  vested as of the Date of Grant and each
subsequent  increment becoming vested on the first through fourth  anniversaries
of the Date of Grant;  and (ii) stock options for an aggregate of 100,000 shares
of Common  Stock,  at an  exercise  price of $13 9/16 per  share,  and with such
options  becoming  exercisable  at the rate of 20,000 shares per year,  with the
first increment being  immediately  exercisable as of the Date of Grant and each
subsequent   increment   becoming   exercisable  on  the  first  through  fourth
anniversaries of the Date of Grant.

         (d) The Executive shall also be eligible to participate in the
Company's Executive Deferred  Compensation  Plan,  under  which  the  Executive
shall be entitled to defer up to twenty-five  percent (25%) of his base salary,
bonus or both and the Company shall credit a matching  contribution equal to ten
percent (10%) of the Executive's base salary to the Executive's account.

         (e) The Executive shall be eligible to receive, subject to the
oversight and approval of the Compensation  Committee,  annual stock options for
shares of Common Stock, up to an aggregate of  200,000  shares  for  attainment
of  the  maximum  performance  goals  then applicable,  for the Company's 1998
fiscal year to be paid in early 1999,  which may be paid in the  alternative on
the  attainment of such maximum  performance goals as an aggregate of 40,000
restricted shares of Common Stock.




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         (f) In addition, the Company's Board of Directors  or the  Compensation
Committee may from time to time  authorize the payment to the Executive of other
incentive compensation, in accordance with rules and criteria established by the
Compensation Committee, in its sole discretion.

         5.  Medical  and 401(k)  Plans;  Eligibility  for Other  Benefits.  The
Executive shall be eligible for  participation in the Company's (a) medical plan
commensurate  with the benefits offered to all other executives and employees of
the Company and (b) the  Company's  401(k) Plan.  Additionally,  this  Agreement
shall  not be in lieu of any  rights,  benefits  and  privileges  to  which  the
Executive  may be  entitled  as a  management  level  employee  of the  Company,
including  but not  limited to any other  retirement,  pension,  profit-sharing,
insurance,  dental,  hospital or other plans which may now be in effect or which
may  hereafter  be adopted by the  Company.  The  Executive  shall have the same
rights and privileges to  participate in such plans and benefits  offered by the
Company as any other management level employee during the Term.

         6. Vacation Benefits; Expenses. The Executive shall be entitled to full
vacation  benefits  as of the  date  of this  Agreement.  Further,  the  Company
recognizes that the Executive will have to incur certain out-of-pocket expenses,
including  but not limited to travel  expenses,  related to his services and the
Company's  business and the Company  agrees to reimburse  the  Executive for all
reasonable expenses necessarily incurred by him in the performance of his duties
upon  presentation  of a voucher  or  documentation  indicating  the  amount and
business purposes of any such expenses.

         7.  Change  of  Control.  In the event of the  Executive's  termination
resulting from a change of control of the Parent, for a term of three (3) years,
the  Executive  shall be entitled to  receive,  in addition to any  compensation
earned but not paid through the date of the  Executive's  termination  resulting
from such a change of control, a  change-of-control  payment in an amount and on
terms  and  conditions  to be  subsequently  approved  by the  Parent's  and the
Company's Boards of Directors after the date of this Agreement.

         8.  Termination  in  Case  of  Death  or  Disability.  In  case  of the
Executive's  death or  permanent  disability  (defined  to mean the  Executive's
inability,  by  reason  of  physical  or  mental  disability  of the  Executive,
confirmed by a licensed physician,  to perform the services described in Section
3 above,  which  inability  continues  for a period of one hundred  twenty (120)
consecutive days within any one (1) year period), the Company may terminate this
Agreement, subject to the terms of Section 9.






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                  9.       Definitions.  For purposes of this Agreement, the
following terms shall have the following definitions:

                  (a) "Voluntary  Termination"  means the Executive's  voluntary
termination of his employment hereunder,  which may be effected by the Executive
giving the Company's and the Parent's Boards of Directors 30 days written notice
of the Executive's desire to terminate his employment or the Executive's failure
to provide  substantially  all the services  described in Section 3 hereof for a
period  greater  than four (4)  consecutive  weeks by reason of the  Executive's
voluntary refusal to perform such services.  Notwithstanding  the foregoing,  if
the Executive gives notice of Voluntary Termination and, prior to the expiration
of the 30-day  notice  period,  the  Executive  voluntarily  refuses or fails to
provide  substantially  all the  services  described  in  Section 3 hereof for a
period of eight or more business days, the Voluntary Termination shall be deemed
to be effective as of the date on which the Executive so ceases to carry out his
duties.  For purposes of this Section 9, voluntary  refusal to perform  services
shall not include the Executive's  failure to perform services on account of his
illness (except as described in Section 8 hereof), or the illness of a member of
his immediate family,  provided such illness is adequately  substantiated at the
reasonable  request of the Company and the  Parent,  authorized  vacation or any
other  absence from service with the written  consent of the  Company's  and the
Parent's  Boards of  Directors.  For  purposes of this Section  9(a),  immediate
family shall constitute the Executive's spouse and children, if applicable.

                  (b)  "Termination  Without Cause" means the termination of the
Executive's  employment  by the  Company  for any reason  other  than  Voluntary
Termination or Termination With Cause.

                  (c)  "Termination  With Cause"  means the  termination  of the
Executive's  employment  by act of  the  Company's  or  the  Parent's  Board  of
Directors for any of the following reasons:

                           (i) the  Executive's  conviction of a crime involving
                           some   act   of   dishonesty   or   moral   turpitude
                           (specifically   excepting  simple   misdemeanors  not
                           involving   acts  of   dishonesty   and  all  traffic
                           violations);

                           (ii)    the    Executive's    theft,    embezzlement,
                           misappropriation  of  or  intentional  and  malicious
                           infliction of damage to the Company's or the Parent's
                           property or a business opportunity;

                           (iii)  the  Executive's  continuous  neglect  of  his
                           duties   with  the  Company  or  the  Parent  or  his
                           continuous   failure   or   refusal   to  follow  any
                           reasonable,    unambiguous   duly   adopted   written
                           direction of the respective Board of Directors or any
                           duly constituted committee thereof; and






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                           (iv) the Executive's abuse of alcohol, drugs or other
                           substances,   or  his  engaging  in  other   personal
                           activities  in  a  manner  that,  in  the  reasonable
                           judgment  of  the  respective   Board  of  Directors,
                           adversely   affects  the   reputation,   goodwill  or
                           business position of the Company or the Parent.

                  (d) "Involuntary Termination" means conduct on the part of the
Company or the Parent that constitutes  continuous and material  interference by
the Company or the Parent with the Executive's  performance of his duties as set
forth in Section 3 hereof or the  intentional or material  breach by the Company
or the Parent of this Agreement.

         10.  Voluntary  Termination;  Termination  With Cause. If the Executive
shall  cease  being an  employee  of the  Company  or the Parent on account of a
Voluntary  Termination  or  shall  suffer a  Termination  With  Cause,  then the
Executive shall not be entitled to any compensation  after the effective date of
such  Voluntary  Termination  or  Termination  With Cause  (except  compensation
accrued but unpaid on the date of such event).

         11. Death or  Disability;  Termination  Without  Cause;  or Involuntary
Termination.  If the  Executive  shall suffer a death,  disability,  Involuntary
Termination or a Termination  Without Cause,  then (a) the Company shall pay the
Executive his Base Salary  (prorated for the remainder of the Term), all bonuses
to which the Employee would otherwise be entitled,  medical  insurance and other
benefits for the remainder for the Term, and (b) all stock options and shares of
restricted stock previously  granted to the Employee shall neither be terminated
or  canceled  nor shall  their  vesting  periods be altered  due to such  death,
disability, Involuntary Termination or Termination Without Cause.

         12. Notices. All notices or deliveries  authorized or required pursuant
to this  Agreement  shall be deemed  to have  been  given  when in  writing  and
personally  delivered or when  deposited  in the U.S.  mail,  certified,  return
receipt  requested,  postage prepaid,  addressed to the parties at the following
addresses or to such other  addresses as either may  designate in writing to the
other party:

         To the Company:                    Equity Inns Services, Inc.
                                            7700 Wolf River Boulevard
                                            Germantown, Tennessee 38138

                                            Attn:  Board of Directors

         To the Parent:                     Equity Inns, Inc.
                                            7700 Wolf River Boulevard
                                            Germantown, Tennessee  38138

         To the Executive:                  Donald H. Dempsey
                                            c/o Equity Inns, Inc.
                                            7700 Wolf River Boulevard
                                            Germantown, Tennessee 38138




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         13. Entire Agreement.  This Agreement contains the entire understanding
between the parties  hereto with respect to the subject  matter hereof and shall
not be modified in any manner except by instrument in writing  signed,  by or on
behalf of, the parties hereto. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors and assigns of the parties hereto.

         14.  Applicable  Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee. Should any provision of this
Agreement be declared or determined  by any court to be illegal or invalid,  the
validity  of the  remaining  parts,  terms or  provisions  shall not be affected
thereby and said illegal or invalid part,  term or provision shall be deemed not
to be a part of this Agreement.

         15. Assignment. The Executive acknowledges that his services are unique
and personal.  Accordingly,  the Executive may not assign his rights or delegate
his duties or obligations under this Agreement. Either the Company or the Parent
may assign its rights and obligations  under this Agreement in connection with a
merger or sale of substantially  all of either such  corporation's  assets.  The
Executive's  rights and  obligations  under this  Agreement  shall  inure to the
benefit of and shall be binding upon the  Executive,  and the  Company's and the
Parent's rights and obligations  under this Agreement shall inure to the benefit
of  and  shall  be  binding  upon  the  Company's  and  the  Parent's  corporate
successors,  assigns, and legal representatives.  As used herein, the Company or
the  Parent  shall  include  any  assignee,   successor  in  interest  or  legal
representative of the Company or the Parent.

         16.  Headings.  Headings in this Agreement are provided for the sake of
convenience only and shall not be used to interpret or construe its provisions.

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

                                    EQUITY INNS SERVICES, INC.

                                    By:     /s/ Phillip H. McNeill
                                            ----------------------
                                    Name:   Phillip H. McNeill, Sr.
                                            -----------------------
                                    Title:  CEO
                                            -----------------------

                                    EQUITY INNS, INC.


                                    By: /s/ Phillip H. McNeill
                                    --------------------------
                                    Name: Phillip H. McNeill, Sr.
                                    -----------------------------
                                    Title: CEO
                                    ----------



                                    EXECUTIVE:


                                    /s/ Donald H. Dempsey
                                    ---------------------
                                    Donald H. Dempsey