Settlement agreements and COT3

What is a COT3?

A COT3 is the name of the legally binding agreement used to record a settlement reached through Acas conciliation. An Acas conciliator writes down the terms agreed between you and your employer, whether the agreement is reached during early conciliation or after an Employment Tribunal claim has started.

Once terms are agreed, the dispute is settled on those terms and the Tribunal hearing will not go ahead, or will end if it has already started. A COT3 can be binding even before the document is signed, so make sure you understand and accept every term before telling the conciliator that you agree.

A COT3 is different from an ordinary settlement agreement negotiated directly with an employer. Both can settle employment claims, but a COT3 is arranged through Acas; a settlement agreement is a separate written contract that must meet specific legal conditions, including independent advice, to validly waive claims.

What is a settlement agreement?

A settlement agreement is a legally binding written contract that resolves an employment dispute, often involving a payment in exchange for giving up specified rights to bring or continue claims.

It might be used when employment ends through dismissal or redundancy, or to settle an existing dispute. A redundancy deal may include an enhanced payment above the statutory minimum.

The worker must receive advice from a relevant independent adviser for the agreement to validly waive the claims it covers.

Key terms to review

• Compensation amount and payment date
• Notice pay, holiday pay, and bonuses
• Reference wording and announcements
• Confidentiality and non disparagement clauses
• Waiver of claims and legal fees contribution

Negotiation approach

1. 01

   Know your objectives

   Decide what matters most: money, reference, or timing. Use a settlement agreement calculator to set your baseline.

2. 02

   Check the numbers

   Separate wages, notice, holiday, bonus, pension and any compensatory payment. The tax position can differ across those lines.

3. 03

   Ask for the proposed terms in writing

   Review every term, including the claims covered, payment deadline, reference and confidentiality wording. With a COT3, do this before confirming to the Acas conciliator that you agree.

4. 04

   Get independent advice

   Independent advice is one of the legal requirements for a settlement agreement to validly waive claims. It is not the same statutory requirement for a COT3, but Acas conciliators are impartial and do not give legal advice, so consider getting advice before agreeing either type of deal.

Tax basics

• Notice pay, wages, holiday pay and most bonuses are taxed as normal income.
• Some genuine termination payments can sometimes benefit from a tax exemption up to £30,000, but that does not automatically apply to every line item in a deal.
• Always confirm how each payment will be described, taxed and reported to HMRC, and make sure any tax indemnity clause is fair.

Common questions