COT3 or Settlement Agreement? Spot the difference.

When seeking to resolve existing or potential employment disputes, employers must ensure that they choose a mechanism that allows them to effectively waive threatened or potential claims. While the release of contractual claims, such as damages for breach of contract, requires only the basic component of “valuable consideration,” the rules governing the resolution of statutory claims are much more prescriptive.

Statutory employment claims include most employment-related claims, such as unfair dismissal and discrimination. These are waived only if the payment:

• Agreed (via mediation or arbitration) through Acas.or
• It will be recorded in a settlement agreement that complies with various legal requirements.

Although agreements through Acas can also be achieved orally, the terms of the settlement are usually recorded in an agreement known as a COT3. As explained below, there are important differences between a COT3 and a Settlement Agreement regarding the procedure for the agreement, the advice required and, last but not least, the potential scope for waivers.

Below is a summary of the main features of each contract, as well as a table showing the key differences. You can read more about the settlement agreement here.

COT3

If an employment-related dispute arises and an employee wishes to take the claim to an employment tribunal, an Acas conciliation officer will be assigned to the case and the case will need to be taken through the Acas conciliation process. As a result, if mediation takes place with an Acas Mediation Officer (whether at an early stage in the proceedings or on the eve of the hearing), the COT3 form can be used to record the terms of the settlement. These, of course, include whether the employer admits liability and details of any compensation to be made to the claimant.

Again, it is important to note that oral agreements following Acas mediation are binding and COT3 is not legally required. However, not to mention the certainty of a written agreement and the benefit of covering more detail.

What can they cover?

COT3 may be used to achieve full and final settlement of any claim that Acas has authority to arbitrate. Importantly, COT3 is capable of resolving not only current claims (i.e., specific disputes that have already arisen), but also future claims. If the language of the contract is sufficiently clear as to the parties’ intentions, a COT3 can capture claims and rights that were not even contemplated at the time the COT3 was entered into. The language of COT3 must be as specific as possible, as future courts will interpret the scope of such waivers narrowly. However, this type of agreement differs from a settlement agreement because it can be far-reaching.

What is the practicality?

In practice, employees (or claimants) do not need to obtain independent legal advice to enter into a COT3 agreement. If they choose to do so, the costs are their own responsibility and the employer usually does not contribute. If a legal representative is involved, the representative can sign her COT3 on behalf of the employee. Once an agreement is reached, Acas will notify the court to cancel the scheduled hearing.

Although COT3 is commonly associated with threatened or ongoing court proceedings, its use is not limited to this situation. Acas can facilitate large-scale settlement procedures, for example in connection with collective redundancy processes. Given that COT3 may waive claims related to collective consultation obligations (as opposed to a settlement agreement (see below)) and the fact that independent legal advice for each employee is not required; This can be an efficient process for employers.

settlement agreement

Settlement agreements (formerly known as compromise agreements) are used by employers and employees to resolve employment disputes, primarily when employment has been or is about to be terminated. For example, increased redundancy compensation may be conditional on the employee entering into a settlement agreement.

Acas is not required to be involved in settlement negotiations. Therefore, in contrast to an mediated settlement under COT3, a claim in court (or indeed any other legal proceeding) is not automatically stopped once a binding agreement is reached. If the employee is already in litigation, the terms of payment under the settlement agreement will typically result in the employee filing a letter with the court requesting that the lawsuit be withdrawn.

What is the procedure?

There are several formalities that must be met for a settlement agreement to effectively waive statutory claims.

• It must be in writing and signed by both parties.
• Before signing, employees must obtain legal advice from an independent advisor about the terms and effects of the agreement. Although not a legal requirement, employers usually cover this cost.
• Advisors must be identified in the contract and have insurance.
• The agreement must state that the conditions governing the settlement agreement have been met.
• The contract must relate to a “specific grievance” or “specific legal proceeding”. This means that the employee must consider the claims that may be waived by signing the contract, and that those claims must be clearly identified in the contract.

What is the potential range?

This last point relates to the scope of potential waivers and is a key point of differentiation from COT3. Although the court has described this as an “outrageous result,” a sufficiently clear COT3 can waive future claims of which the parties are not yet aware. However, the possibility of a general release of claims related to future events in a settlement agreement is more uncertain. Last year we wrote about the Employment Appeal Court’s decision in Bathgate (see here). The decision held that a settlement agreement could not waive future claims if no cause of action had arisen on the date of the agreement. Previous EAT cases had suggested that this result could be achieved with sufficiently clear language, but Bathgate cast doubt on this.

The case also called into question, if not conclusive, the practice of including all theoretical potential complaints (not just asserted ones) in waivers. With this in mind, it is important to ensure that you consider what is appropriate to include on a case-by-case basis. It is best to ignore claims that have only a small probability.

More specifically on the question of scope, there are certain statutory claims that cannot be waived by a settlement agreement, but which fall within the scope of COT3. these are:

• Claims for failure to notify and consult appropriate representatives of planned collective redundancies.and
• Alleges that TUPE was not notified and consulted about the transfer.

Claims that cannot be waived under either agreement are not discussed in detail here.

Northern Ireland

Employers should also be aware that different requirements apply regarding the release of statutory employment claims in Northern Ireland. These claims may be recorded if a settlement is agreed through the Labor Relations Authority (where the equivalent of COT3 is his CO3 agreement) or in a compromise agreement (rather than a settlement agreement) that satisfies various legal requirements. Can be waived only if

Comparison table

Although the differences between these two options may not seem important, they are worth keeping in mind if you have a choice.

	COT3	settlement agreement
Must be in writing	No, but the COT3 form usually reflects what was agreed verbally	yes
Employees must receive independent legal advice	no	yes
Employers must cover the employee’s legal costs	no	No, but it is common to
Must be relevant to a specific claim	yes	yes
Waiver of claims for failure to notify and consult	yes	no
Be able to respond to future claims that have not yet occurred	Yes, as long as you are very clear and precise about what future claims will be covered.	Case law suggests otherwise, but those seeking to do so must clearly and precisely state this intention.
Can be signed after the employee initiates the process	yes	yes
Must be accessed via Acas	yes	no
If proceedings are initiated, who will notify the arbitral tribunal of the settlement?	Acas (and claimant if requested)	The claimant must withdraw the claim