COT3 Agreements vs Settlement Agreements: What is the Difference?

A COT3 and a settlement agreement do the same job, they end an employment dispute in return for a payment, but they are used at different stages and follow different rules. A COT3 is used when ACAS is involved to settle a live or potential tribunal claim. A settlement agreement is a private contract between you and your employer, typically used before any claim is issued. If you have been offered either, take advice before you sign.

What is a COT3 agreement?

A COT3 is the document ACAS uses to record a settlement of an employment tribunal claim, or a claim that could be brought. The name comes from the historical ACAS form number. It is negotiated with the help of an ACAS conciliator, who acts as a neutral go-between rather than an adviser to either side. Once both parties confirm the terms, usually by email or over the phone, the COT3 is binding and any tribunal claim covered by it is settled.

What is a settlement agreement?

A settlement agreement is a private contract between you and your employer under section 203 of the Employment Rights Act 1996. It is normally offered before a tribunal claim is issued, often when your employment is ending, and typically covers redundancy, performance disputes, exits by agreement and workplace conflicts. To be legally binding you must take independent legal advice from a qualified adviser (almost always a solicitor) and that adviser must sign the agreement to confirm they have advised you. The settlement agreement advice hub walks through the process in detail.

The ACAS conciliation process, step by step

Before you can bring most tribunal claims you have to notify ACAS. That triggers early conciliation, a free service that gives both sides a chance to settle without a hearing.

1. Early conciliation notification. You (or your employer) contact ACAS and complete an EC notification form. This pauses the tribunal clock for up to six weeks.
2. A conciliator is assigned. They speak to both sides separately, pass offers back and forth, and give a realistic view of what a tribunal might do.
3. Terms are agreed. If both sides accept a figure and wording, the conciliator drafts a COT3 and sends it to each party.
4. The COT3 becomes binding. Once both parties confirm the terms (a confirmatory email is usually enough), the claim is settled. There is no cooling-off period.
5. Payment is made. The employer pays the agreed sum, usually within 28 days, and any tribunal claim is withdrawn.

Key legal differences

• Who is involved. A COT3 goes through ACAS. A settlement agreement is direct between you and the employer, with your own solicitor advising.
• Independent advice. Independent legal advice is a legal requirement for a valid settlement agreement. It is not required for a COT3, though it is still strongly recommended.
• Stage of the dispute. A COT3 is used once a tribunal claim exists or is on the table via early conciliation. A settlement agreement is normally used before things reach that stage.
• Formality. A settlement agreement is a signed written document. A COT3 can be concluded by exchange of emails through the conciliator, with no wet-ink signature needed.
• Who pays the fees. With a settlement agreement, the employer almost always pays a contribution towards your legal fees. With a COT3, there is no legal requirement for the employer to contribute, but a contribution can be negotiated.
• Enforcement. A breach of a COT3 is enforced in the county court in the same way as a settlement agreement. Neither is enforced by the tribunal itself.

When each one is used

Use a settlement agreement when your employer wants to end your employment cleanly, before any claim is issued. Typical scenarios are redundancy exits, negotiated departures after a performance or conduct issue, restructures, and senior exits where the parties want a full set of restrictive covenants and confidentiality terms in one document.

Use a COT3 when you have already started early conciliation or issued a tribunal claim, and both sides want to settle without a hearing. It is also common where the employer has refused a settlement agreement, the employee has notified ACAS, and negotiations then restart under ACAS.

The two can also work back to back. If a settlement agreement offer breaks down and you notify ACAS, the same commercial terms can often be re-packaged as a COT3 through the conciliator.

What to check before you sign a COT3

• Scope of the settlement. Which claims are being settled? A well drafted COT3 will list them. Anything outside that list can still be pursued.
• Payment amount, timing and tax treatment. Confirm what is compensation (usually tax free up to £30,000) and what is notice, bonus or holiday pay (taxable in the normal way).
• Reference and announcement. Ask for an agreed reference and, where relevant, an agreed internal or external announcement.
• Confidentiality and non-disparagement. Understand what you can and cannot say, and to whom. Protected disclosures (whistleblowing) cannot be signed away.
• Restrictive covenants. Check whether existing post-termination restrictions are being confirmed, varied or released.

Which is better for you?

Neither is automatically better, they are different tools for different stages of a dispute. A settlement agreement usually gives you a more detailed contract, an employer-funded legal review and a clean exit before any claim is issued. A COT3 is faster, lighter touch and gives you the leverage of a live or threatened tribunal claim, which often improves the financial offer.

If you are not sure which route you are on, or you have been sent either document, we can review it and tell you where you stand, usually the same day. Start on the settlement agreement hub, try the settlement agreement calculator, or get in touch.

COT3 FAQ