Kansas Supreme Court Declines Reasonableness Review for Non-Competition Conditions Precedent

Introduction

Lawson v. Spirit Aerosystems, Inc. arises from a dispute between Larry A. Lawson, former CEO of Spirit Aerosystems, and Spirit Aerosystems, Inc., a major aerospace manufacturer. Lawson’s employment agreement included both a traditional non-competition covenant and long-term incentive stock awards that vested only if he remained employed. To facilitate an early retirement without forfeiting unvested awards, the parties entered a separate Retirement Agreement: Spirit agreed to extend Lawson’s vesting period in exchange for his post-retirement consultancy services, conditioned on his continued compliance with the original non-compete. After Lawson joined a hedge fund’s proxy campaign against one of Spirit’s suppliers, Spirit stopped payments and canceled the extended vesting. Lawson sued for breach of contract; Spirit defended that Lawson had forfeited his future benefits by violating the non-compete condition precedent.

Summary of the Judgment

On appeal to the Tenth Circuit, the court affirmed the district court’s ruling in favor of Spirit. It held that:

Under Kansas law, traditional non-competition covenants are subject to a four-factor “reasonableness” test (Weber v. Tillman), but a non-competition clause that operates solely as a condition precedent to future benefits is not.
Lawson’s Retirement Agreement clearly made his vesting contingent on non-competition compliance, creating a “carrot” rather than a “penalty” structure.
The injunctive and damages remedies in the original covenant were severable from the condition-precedent mechanism, leaving only the enforceable vesting condition.
The Tenth Circuit declined to certify the question to the Kansas Supreme Court, finding ample guidance in Kansas common law, precedent, and trends nationwide.

Analysis

Precedents Cited

Weber v. Tillman (1996): Kansas Supreme Court established a four-factor reasonableness test for enforceability of traditional non-competes.
Varney Business Services v. Pottroff (2002): Extended Weber review to “non-traditional” penalty-for-competition clauses that impose monetary penalties for competition.
Miller v. Foulston, Siefkin, Powers & Eberhardt (1990): Under Kansas’s professional-ethics rules for attorneys, upheld a forfeiture-for-competition clause without reasonableness review.
Idbeis v. Wichita Surgical Specialists (2005): Restated that scope, not remedy, governs reasonableness review—applied in the traditional covenant context.
Sweet v. Stormont Vail Regional Medical Center (1982) & Mirrow v. Barreto (2003): Recognized Kansas courts’ willingness to enforce conditions precedent to future benefits.
Out-of-state frameworks:
- Employee Choice Doctrine (e.g., New York, Massachusetts, Pennsylvania, Delaware): No reasonableness review where employee may choose to compete or forfeit future benefits.
- Pragmatic Approach (e.g., California, Connecticut, Nebraska): All non-competition conditions, including those tied to future benefits, undergo reasonableness review.
- Hybrid View (Fourth Circuit in Allegis v. Jordan): Applies reasonableness only when the forfeiture affects already-earned compensation, not purely future benefits.

Legal Reasoning

The court’s reasoning unfolded in three steps:

Character of the Covenant: The Retirement Agreement explicitly made vesting of unvested stock awards a condition precedent to compliance with the non-competition clause, rather than a penalty imposed after competition.
Severability: Although the original Employment Agreement provided injunctive and damages remedies, Spirit disclaimed any such enforcement. The district court severed those remedies—per well-established severability clauses—leaving only the vesting condition intact.
Applicability of Weber’s Reasonableness Test: Under Kansas common law and key precedents (notably Miller), Weber’s test applies only to covenants that function as direct restraints enforced by penalties or injunctive relief. A pure condition precedent to future benefits raises no special public policy concern and thus escapes that extra layer of scrutiny.

Impact

Lawson v. Spirit Aerosystems clarifies the following points for future contract drafting and disputes in Kansas (and, by persuasive influence, other jurisdictions):

Non-competition provisions can be structured as conditions precedent to future benefits (the “carrot” approach) rather than prohibitory restraints enforced by penalties (the “stick” approach).
Kansas courts will enforce such condition-precedent arrangements without applying the Weber reasonableness test, provided the non-compete remedy is severed or not sought.
Parties seeking to avoid Weber’s four-factor reasonableness analysis may frame non-competes as benefit-vesting conditions, though they must ensure clear, severable language and balanced bargaining power.
This decision may encourage executive compensation structures that reward post-termination compliance through extended vesting schedules.

Complex Concepts Simplified

Condition Precedent: A contract clause that says “you get this benefit only if you do X.” If you fail X, you never get the benefit—but you’re not otherwise punished.
Non-Competition Covenant: A promise by an employee not to compete with the employer after leaving. Enforced traditionally by injunctive relief or damages.
Weber Reasonableness Test: Kansas’s four-part framework to ensure a non-compete is (1) no greater than required, (2) not unduly harsh, (3) supported by consideration, and (4) not against public welfare.
Severability: If a contract contains both valid and invalid terms, a court may “cut out” the invalid pieces and enforce the rest, especially when a severability clause exists.
Employee Choice Doctrine vs. Pragmatic Approach: Two competing views on whether condition-precedent non-competes require reasonableness review. Under Employee Choice, no; under Pragmatic, yes.
Erie Prediction: In a diversity case, a federal court forecasts how the state’s highest court would rule on unsettled issues, guided by state precedent, principles, and national trends.

Conclusion

Lawson v. Spirit Aerosystems establishes that, under Kansas law, a non-competition covenant enforced only through the loss of future benefits operates as a condition precedent and is not subject to the Weber reasonableness test. By severing injunctive and damages remedies, the core clause conditioning extended stock-award vesting on non-competition compliance remains enforceable without additional public-policy scrutiny. This ruling reinforces freedom of contract, provides guidance on drafting modern executive compensation agreements, and signals that Kansas’s reasonableness review will remain confined to traditional non-competition restraints enforced by penalties or injunctions.