ACAS COT3 vs Settlement Agreement: Which Settles an Employment Claim?

A COT3 (recorded by ACAS Early Conciliation) and a statutory settlement agreement (s.203 ERA 1996) are the two ways to validly compromise most statutory employment rights. This comparison explains the key differences in formality, legal requirements, and effect.

Overview

The general rule under s.203 of the Employment Rights Act 1996 is that any provision in an agreement purporting to exclude or limit the operation of the Act, or to prevent someone from bringing a tribunal claim, is void — unless it is either a statutory settlement agreement (formerly called a compromise agreement) or a COT3 agreement recorded by ACAS. This rule exists to prevent employers pressuring employees into signing away their statutory rights in informal deals. Both routes validly contract out of most statutory employment rights. The choice between them affects the formality required, the role of ACAS, confidentiality, and the scope of what can be settled.

Side-by-Side Comparison

ACAS COT3

Cost: Free — ACAS conciliation is publicly funded

Time: Can be agreed within days; Early Conciliation period is up to 6 weeks

Pros

No requirement for the employee to take independent legal advice — ACAS facilitates but does not advise
Simpler and quicker — can be agreed by telephone with an ACAS conciliator, with the terms recorded on the COT3 form
Free — ACAS conciliation is a free public service
Can settle tribunal claims already issued — stops the clock and records the agreed terms

Cons

ACAS conciliators facilitate but do not advise either party — employee may not understand what they are giving up
Scope is limited — a COT3 typically settles only the claims identified during conciliation; may not cover all potential claims
Less detailed than a settlement agreement — complex payment structures, tax indemnities, and reference terms are harder to include
Once signed, very difficult to set aside — only fraud or fundamental misrepresentation will suffice

Best For

Settling an employment tribunal claim that has already been issued, or resolving a dispute through ACAS Early Conciliation before a claim is filed — particularly where speed is essential and legal complexity is low.

Settlement Agreement (s.203 ERA 1996)

Cost: Employer typically pays £300–£750 towards employee's legal fees; agreement must be signed by an independent adviser

Time: 1–4 weeks from first draft to signed agreement

Pros

Comprehensive — can address multiple statutory and contractual claims in detail, including post-termination obligations, confidentiality, tax indemnities, and agreed references
Employee has independent legal advice — meaning they are informed; reduces risk of later challenge
Employer typically pays a contribution to the employee's legal fees (£300–£750 is common)
Confidential by nature — settlement agreement terms are not disclosed to ACAS or the tribunal

Cons

Legal requirement for independent advice — cannot be validly completed without a relevant independent adviser signing the certificate (s.203(3)(c))
Takes longer to negotiate and execute — typically 1–4 weeks
Employer's legal fee contribution may be insufficient for complex negotiations
Employee who did not receive proper advice can seek to have the agreement set aside

Best For

Settlement of employment on departure — redundancy, agreed exit, settlement of a grievance or discrimination claim before tribunal — where comprehensive terms, confidentiality, and clear scope of settlement are important.

Key Differences

AspectACAS COT3Settlement Agreement (s.203 ERA 1996)

Legal requirement for independent adviceNot required — ACAS facilitates but does not adviseMandatory — relevant independent adviser must advise and sign (s.203(3)(c) ERA 1996)

FormACAS COT3 standard form — simple and briefDetailed written agreement — covers all agreed terms

Cost to employeeFree — ACAS conciliation is freeEmployer typically contributes £300–£750 to legal fees; balance may be employee's cost

ScopeClaims identified during conciliation — may not cover all potential claimsCan be drafted broadly to cover all known and unknown claims

ConfidentialityTerms not inherently confidential; ACAS records themConfidentiality clause typically included

When usedTypically when a tribunal claim has been (or is about to be) issuedTypically on departure or before a claim is issued

TimingCan be agreed within hours via ACAS telephone conciliation1–4 weeks typically

Our Recommendation

If a tribunal claim has been issued and ACAS conciliation is available, a COT3 is often the quickest and cheapest route to settlement — particularly for straightforward claims. For agreed employment exits, redundancy settlements, or complex situations involving multiple claims, confidentiality requirements, and post-employment restrictions, a settlement agreement provides greater legal certainty and comprehensive protection for both parties. Employees should always take independent legal advice before signing either document.

Related Guides

Official Resources

ACAS: Settlement agreements →Employment Rights Act 1996 s.203 — legislation.gov.uk →