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
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)
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
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.