What is the difference between a COT3 agreement and a settlement agreement?

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COT3 agreements and settlement agreements are both written agreements which are intended to settle, and resolve potential employment law complaints that have been brought (or potentially could be brought) in an employment tribunal or court by employees or workers.


Settlement agreement

A Settlement Agreement is a legally binding contract between an Employee (or worker) and an Employer where in return for consideration, usually financial, the employee (or worker) agrees to enter into the agreement and waive their rights to take the Employer to an Employment Tribunal or Court for any claims they may have arising out of their employment or the termination of their employment. It can also be used in circumstances where an employment tribunal claim has already been issued and a condition of the agreement will be the withdrawal of those claims.

Sometimes a settlement agreement can be used to resolve a dispute where the relationship has not come to an end, for example to resolve a wages or bonus dispute or an isolated discrimination claim.

A settlement Agreement is intended to facilitate a ‘clean break’ in the employment relationship. It is only legally binding if the individual has independent advice as to the terms and effect of the agreement from a relevant independent advisor, for example, a solicitor or certified trade union advisor. The agreement must also be in writing, identify the particular claims the employee or worker is waiving, their legal advisor must be named in the agreement and must hold professional indemnity insurance and it must contain a statement confirming that these conditions have been complied with.

A settlement agreement will usually be a more lengthy agreement (15 – 20 pages is not unusual), with an adviser’s certificate attached. It is fairly common for the legal advisor to identify some minor amendments which may be required to the agreement in order to ensure that any compensation being paid to the employee or worker is correctly identified and taxed, or to ensure that certain clauses are reciprocal in order that it is a fair and balanced agreement in circumstances where the agreement will have been drawn up by the employer holding all the power and all the cards.

Occasionally, a settlement agreement may have a ‘reaffirmation’ requirement. This may be appropriate where an employee or worker is signing the agreement well in advance of their actual departure date. It is technically a ‘settlement agreement within a settlement agreement’ and requires the employee to reassert the terms of the agreement and confirm that no new claims have arisen in the period between signature of the original agreement and leaving the Company.



A COT3 agreement can only be achieved with the involvement of ACAS. In most cases, as a precursor to issuing employment tribunal proceedings, it is now compulsory to register with ACAS for Early Conciliation. ACAS will attempt to resolve a potential employment dispute to avoid the need for formal recourse to an employment tribunal. If a resolution can be agreed, it will often be evidenced in a COT3 agreement. The name derives from the fact it used to be called ‘Central Office of Tribunals form 3’.

If Early conciliation is not successful, ACAS still has a role to play and can assist throughout employment tribunal proceedings with the resolution of a dispute. COT3 agreements are generally much shorter than a settlement agreement and can be signed by the parties’ representatives.

ACAS must have an active involvement in conciliating the dispute and agreeing the wording of the COT3 agreement. ACAS will not be able to assist if the parties have already reached a resolution and agreed wording and simply require ACAs to endorse it. Once wording has been agreed, ACAS will declare that a binding settlement has been reached. It is the only type of agreement in law that is verbally binding. The parties cannot then renege on the agreement, even if they have not yet signed the written copy of the agreement.


COT3 or settlement agreement?

The key differences between the two agreements are summarised below:

  1. The COT3 agreement will usually be in a far simpler and shorter format than the settlement agreement. Settlement agreements will usually be lengthy agreements drafted by lawyers acting for the employer and will place more onerous obligations on the employee or worker.
  2. Settlement agreements will usually have to be signed personally and be signed by both parties before it is binding. A COT3 agreement is verbally binding and can be signed by the parties’ representatives.
  3. ACAS is a neutral organisation and cannot give advice on the preferred terms of a COT3 agreement.  The terms of a Settlement Agreement can be negotiated by the instructed solicitors who will ensure that the interests of the party instructing them come first.
  4. It would be usual with a settlement agreement for the employer to contribute towards the employee/worker’s legal fees for seeking advice on the terms and effect of the agreement. With a COT3 agreement, both parties would usually bear their own costs if they are legally represented.
  5. A settlement agreement can be used at any time during the employment relationship or after the relationship has come to an end. A COT3 agreement can only be used where there is a ‘live’ dispute or live proceedings in which ACAS can conciliate.
  6. If a dispute is resolved at the employment tribunal on the day of the hearing (which is surprisingly common), for practical reasons and due to time constraints, a short COT3 prepared with the assistance of ACAS is likely to prove less problematic than seeking to draw up a settlement agreement and obtain independent advice on the terms.

Askews Legal LLP has a dedicated team of employment law specialists. Please contact Lianne Payne (Head of Employment) or Dai Dave for assistance.

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Askews Legal LLP – Solicitors Coventry.