Labor & Employment Law Daily Wrap Up, CONTRACT CLAIMS—10th Cir.: Former Spirit CEO not entitled to future stock options due to non-compete, (Apr 28, 2025)

By Todd Harrison, J.D.

It was unlikely that the Kansas Supreme Court would review a non-competition condition precedent to the receipt of future benefits under the same reasonableness standard applied to traditional non-competes.

Affirming a district court’s judgment in favor of Spirit AeroSystems and denying its former CEO’s motion to certify the question before Kansas’s high court, the Tenth Circuit determined that the Kansas Supreme Court would not review a non-competition condition precedent to the receipt of future benefits under the same standard it would apply to a traditional non-compete. Some of the CEO’s compensation was tied up in unvested stock awards, and his retirement would have canceled the vestiture of those shares. However, he reached an agreement with Spirit that allowed him to remain on as a consultant, with a non-compete caveat. The court found, among other things, that the covenant provided the CEO with a choice, rather than a punishment, when it came to working elsewhere (Lawson v. Spirit AeroSystems, Inc., No. 23-3136 (10th Cir. Apr. 25, 2025)).

Retirement agreement. After several years, the CEO of Spirit was ready to retire. However, some of his compensation was tied up in unvested long-term stock awards. His employment agreement provided that his retirement would cancel the vestiture of those shares. To get around this result, the CEO entered into a retirement agreement with Spirit wherein he would remain on as a paid consultant while his stock options vested. This agreement was conditioned on his extended compliance with the non-compete contained in his original employment agreement.

Hedge fund. Subsequently, the CEO entered into another consultancy agreement with a hedge fund that was waging a proxy campaign to take control of one of Spirit’s suppliers. Spirit asserted that this arrangement violated the non-compete agreement, terminating the CEO’s paid consultancy position along with the extended vesting period for his stock awards.

Lawsuit. The CEO sued Spirit for breach of contract. The district court initially found that the CEO had not violated the non-compete. The Tenth Circuit reversed and remanded for the district court to determine whether the covenant was enforceable under Kansas law, which reviews traditional non-competes for reasonableness.

On remand, the district court found the covenant was enforceable without reaching the reasonableness test, concluding that the test only applies to traditional non-competes that impose economic penalties for competition. This appeal followed, with the CEO arguing that the district court should have reviewed the covenant for reasonableness. He also asked the appellate court to certify to the Kansas Supreme Court the question of whether the covenant was subject to reasonableness review.

Weber. Kansas established a four-part test for determining the reasonableness of traditional non-competes in Weber v. Tillman, 913 P.2d 84 (Kan. 1996). Here, the CEO argued that Kansas law subjects all non-competes to Weber reasonableness review. The court was not moved.

“For Weber to control this case, in our view, the Kansas Supreme Court would have to apply its holding at an unreasonable level of generality,” said the court. Unlike this case, Weber involved a penalty-for-competition covenant, explained the court, thus taking the present case outside of Weber’s ambit.

Further, the covenant in Weber restrained competition by subjecting the party in breach to a penalty. The covenant at issue in this case does no such thing. It merely provides a monetary incentive in the form of future benefits for not competing. In other words, the worker has a choice between competing and thereby forgoing future benefits or not competing and receiving those benefits. As such, the appellate court predicted that the Kansas Supreme Court would give legal meaning to this difference in its analysis and that it, consequently, would not view Weber’s holding as being the proper analytical fit in this instance.

Varney. In response, the CEO argued that the Kansas Supreme Court’s decision in Varney Bus. Servs., Inc. v. Pottroff, 50 P.3d 1003 (Kan. 2002), extended reasonableness review to a non-traditional non-compete wherein former employees were required to pay to their former employer a percentage of the fees they earned by providing services to clients of the former employer. The court reasoned that because penalty-for-competition provisions “serve the same purpose as covenants not to compete,” “a distinction between the two types of provisions is artificial and meaningless.” So too was the case here, contended the CEO. The court was not persuaded.

Varney did not hold that all non-traditional non-competes are subject to Weber review, said the court. Rather, it read Varney to hold that provisions enforceable in the same or similar manner as traditional non-competition covenants—through some form of monetary penalty—are subject to reasonableness review. Because the covenant at issue in this case is not a penalty-for-competition covenant, the appellate court predicted that the Kansas Supreme Court would conclude that this case is outside of Varney’s scope.

Kansas contract law. Background principles of Kansas contract law also strongly suggested that the Kansas Supreme Court would not review the covenant for reasonableness. “Freedom of contract is the fountainhead of Kansas contract law,” said the court, and there is a presumption that non-competition covenants are generally legal.

Weber is one of Kansas’s limited exceptions to its default practice of enforcing bargained-for non-competition covenants, observed the court. Granting the CEO’s request to scrutinize non-competition conditions precedent to the receipt of future benefits for reasonableness would have the effect of expanding that limited exception.

Employee choice doctrine. Turning to whether the general weight and trend of authority would support the appellate court’s prediction that the Kansas Supreme Court would not review for reasonableness, the court here first looked to the employee choice doctrine, finding that the covenant would not be subject to reasonableness review under this doctrine. Although the Kansas Supreme Court has not expressly embraced this doctrine, the court determined that it would reach a conclusion similar to those who have adopted this doctrine, given its strong respect for the background principle of freedom of contract. Moreover, the court found that the weight and trend of authority plainly favored this doctrine, noting that multiple courts have endorsed this doctrine in the past decade.

Certification. Next, the court considered the CEO’s motion to certify the question before the Kansas Supreme Court. Specifically: whether Kansas law requires courts to apply a reasonableness test “in determining whether to enforce a non-compete clause when a former employee’s compliance with the clause serves as a condition precedent to the receipt of the employee’s previously earned compensation and the failure of the condition triggers the forfeiture of such compensation?”

Denying the motion, the court found that the CEO improperly framed the question for certification as being whether reasonableness review applies “when a former employee’s compliance with the clause serves as a condition precedent to the receipt of the employee’s previously earned compensation.”

Phrased this way, the question assumes that the unvested shares that accumulated during the CEO’s tenure were previously earned compensation. The court noted that it had already rejected this assumption. The unvested shares had no cash value and would have terminated on the CEO’s retirement but for the subsequent retirement agreement.

Because the court rejected the applicability of a key premise of the CEO’s question, the Kansas Supreme Court’s response to the question would not resolve the issue, and thus an answer to the question would not be dispositive. Accordingly, the district court’s judgment was affirmed and the motion to certify was denied.

The case is No. 23-3136.

Judge: Holmes, J.

Attorneys: Joseph T. Baio (Law Offices of Joseph T. Baio) for Larry A. Lawson. Gary L. Ayers (Foulston Siefkin) for Spirit AeroSystems, Inc.

Companies: Spirit AeroSystems, Inc.

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