COT3 Agreements - A Guide For Employees

When do COT3 agreements tend to be used?

COT3 agreements would generally only be used if ACAS has had some role in conciliating the dispute between the employer and the employee – this doesn’t mean that ACAS have to have been fully involved in all negotiations, and can mean simply that the parties have copied ACAS into the correspondence between them prior to reaching a deal. However, if ACAS have not been involved at all in the negotiations between the parties, even at a minor level, then ACAS will generally not agree to settle the deal via ACAS conciliation (a COT3 agreement).

If you want to use a COT3 agreement it is therefore a good idea to contact ACAS at an early stage in negotiations to involve them (even if, as above, it is simply to keep ACAS in copy).

What is ACAS’s Role in an Employment Tribunal Claim?

Before being able to take a claim to an employment tribunal, employees must participate in ACAS early conciliation. ACAS Early Conciliation is a process run by ACAS whereby ACAS attempts to encourage the parties to discuss settlement terms before an Employment Tribunal claim is issued.

If a claim is subsequently issued ACAS still has a role as a conciliator to the Employment Tribunal claim, and ACAS will be notified by the Employment Tribunal when a claim is issued. ACAS will then get in contact with the parties to encourage them, again, to look at discussing settlement terms.

What is the Process for Using ACAS COT3 agreements?

You will need to reach out to ACAS to start involving them in settlement discussions – you can either email them or telephone them (ACAS will normally provide you with the contact details of the conciliator assigned to your case at the start of the Employment Tribunal claim).

How much you use ACAS’s services in ACAS Early Conciliation is up to you: it can be as basic as just keeping ACAS informed of the communications between you and your employer, or you can reach out and ask ACAS to put a settlement offer to the other side; either side can put a settlement offer forward, you don’t have to wait for your employer to do it.

Once heads of terms (i.e. the core terms of the settlement offer) have been agreed the COT3 agreement will need to be drafted – if one or both of the parties are legally represented then the legal representative(s) will generally draft the COT3 agreement and agree it; if the parties are not legally represented then ACAS will step in to draft the agreement (unless the parties are confident that they can draft and agree the COT3, in which case they can draft and agree it, and then send it to ACAS).

Once the parties have drafted and agreed the COT3 they then need to inform ACAS that the terms are agreed and provide a final copy of the agreed COT3 to ACAS. ACAS will then confirm to the employer and employee in writing that settlement terms have been agreed, and ACAS will confirm to the Employment Tribunal that the case is settled.

ACAS will then send out a ‘formal’ copy of the COT3 for the parties to sign – this is, generally, simply a formality (as, as above, once the parties have confirmed to ACAS that the COT3 is agreed then it will be binding, irrespective of whether the parties have signed it or not), but it is a formality that is worth complying with.

Although COT3 agreements don’t require employees to take legal advice before agreeing to them, it is generally advisable to take legal advice on the COT3 agreement before you enter into it (as, once you have confirmed that you agree to the COT3, it will generally be legally binding). 

What is the Difference Between a COT3 Agreement and a Settlement Agreement?

A COT3 agreement requires the intervention of ACAS for the agreement to be binding, unlike statutory settlement agreements.

Furthermore, settlement agreements must be signed off by an employment solicitor and typically offer the employee contributions to their legal fees from the employer, which ACAS COT3 agreements do not.

Finally, ACAS agreements can only be used during ongoing disputes or certain proceedings, which isn’t the case for statutory settlement agreements.

Why Use a COT3 Agreement Instead of a Settlement Agreement?

There are three advantages to using a COT3:

1. The principal advantage for an employee of using a COT3 settlement agreement is that using ACAS’s services is free: you don’t have to pay for a solicitor to review, advise on, or sign off on the COT3 agreement like you would need to if you used a statutory settlement agreement.
2. More often than not, ACAS conciliations only require a few calls. Hence, it saves employees time, money and stress.
3. Moreover, ACAS are an independent party in the process – they’re not instructed by either party, nor do they advise either party. This means they don’t serve anyone’s interests and won’t attempt to influence the outcome in a particular party’s favour.

What are the benefits of using a COT3 agreement?

The advantages of a settlement agreement (whether a COT3 agreement or a statutory settlement agreement) in general is that it allows the parties to a dispute to settle the dispute on agreed confidential terms. This reduces both parties’ liability (i.e. their chance that they may win or lose the claim), reduces costs, and reduces the amount of public resources that the case is using (as the Employment Tribunal will no longer need to adjudicate the case). Settlements, and therefore the use of settlement agreements, are not only a benefit to employees and employers, but they are a public good.

Equally, the fact and content of settlement discussions are generally not admissible as evidence. And employees can obtain benefits via a settlement agreement that an Employment Tribunal would not necessarily be able to award (such as a contribution towards the employee’s legal costs, provision of an agreed announcement, or an apology by the employer).

Finally, one of the general advantages of a settlement agreement (whether a COT3 agreement or a statutory settlement agreement) is that certain sums can be paid to an employee tax-free (such as, but not limited to, compensation for loss of earnings (also known as an ex gratia payment), personal injury damages, and compensation for injury to feelings which is not caused by termination of employment).

The advantages of using a COT3 agreement vs a settlement agreement are set out above (including, but not limited to, reduced costs, reduced involvement, and that ACAS are an independent third party).

What are the risks of using a COT3?

Although ACAS COT3 agreements have distinct benefits and reasons to be used over ‘regular’ statutory settlement agreements, there are still risks associated with their use. These include, but are not limited to, the following:

1. Since there’s no requirement to obtain legal advice before accepting a settlement, employees may receive less than they might otherwise be entitled to in settlement, and the agreement may not be dealt with in the most tax-efficient way. A solicitor may be able to negotiate a better deal or structure the agreement in a more efficient way for tax purposes;
2. ACAS are independent and they should not provide either side with legal advice. This generally means that an employee will be at a disadvantage because, more often than not, the employer will be legally represented – there will therefore be an “inequality of arms” which means that the employee could lose out;
3. The employer generally will not pay a contribution towards legal fees under an ACAS COT3 agreement, whereas they would normally do so under a statutory settlement agreement

How should you start settlement negotiations?

As detailed above, you should contact ACAS to commence ACAS conciliation/early conciliation. You should then put a settlement offer to your employer, copying ACAS in, or ask ACAS to put the settlement offer to your employer.

What are Commonly Used Terms in a COT3?

Such agreements can also be referred to as an ACAS settlement or a COT3 settlement. During the process, employees may come across terms like:

• Conciliation officer – The ACAS representative responsible for corresponding between the parties during negotiations and drafting the settlement form.
• Settlement – The mutually agreed terms to avoid an employment tribunal. Among other things, it could include financial and non-financial benefits, as well as confidentiality clauses.

Do You Need to Pay to Use a COT3 Agreement?

ACAS is a quango (quasi-autonomous non-governmental organisation), and is funded by the Government.

Since ACAS is Government-funded, their conciliation service is free. That being said, additional legal costs incurred, such as obtaining a solicitor’s advice, wouldn’t be automatically covered in one’s agreement. Therefore, addressing this during negotiations is essential to ensure it’s included in an employee’s settlement.

Should you obtain legal advice on your COT3?

It’s always a good idea to obtain independent legal advice on your employment dispute and settlement, as specialist employment lawyers will be able to use their expertise and experience to advise you on how to deal with your COT3, what settlement you should expect, and how to achieve what you want. They can provide expert advice and navigate employees through the legal process to obtain the optimal outcome.

However, it’s not essential to obtain legal advice on your COT3 and whether or not you want to do so will depend on how confident you feel about dealing with your employer (or their lawyers).

How much will it cost me to obtain legal advice on my COT3?

Since no case is the same, the cost of legal advice will differ – in some circumstances, the cost of legal advice can be quite low (no more than £500 plus VAT), and we can offer you a range of different funding options for your matter (including hourly charging, no win no fee, and fixed fee). We can discuss with you the best funding option for your matter to suit your needs.

Can ACAS advise me on my COT3 Settlement Agreement?

Whilst ACAS can communicate with the parties and draft the COT3 agreement, and explain the Tribunal process and the parties’ respective options regarding settlement, they must not provide the parties with legal advice (as they are not qualified to do so) or represent either party.

ACAS will therefore not be able to advise you on whether you should settle your claim, the potential compensation that you should seek, and what the strengths of your claim are.

What can an ACAS Conciliator not do?

As discussed, ACAS conciliators cannot give legal advice on Employment Tribunal claims or settlement agreements – this includes whether an individual should accept a settlement offered or negotiate. Also, ACAS conciliators cannot represent either party or outline whether making a claim is advisable.

Are ACAS agreements enforceable?

Even though a COT3 agreement requires each party’s signature, it becomes legally binding when they both agree to it. Such agreement could be made orally or in writing. When the settlement becomes legally binding, it is enforceable, like an employment tribunal award.

What Happens if a COT3 agreement is breached?

Once an ACAS settlement has been agreed, it becomes an enforceable (and admissible) contract. As such, if a party breaches the agreement, the other can pursue a claim for breach of contract in the Employment Tribunal to enforce the agreement.

We hope our guide has answered your questions about COT3 agreements. If you have further questions or require assistance from an employment law specialist concerning your settlement agreement, contact us now.

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