In this article, we explore COT3 agreements and settlement agreements, two legally binding options for resolving employment disputes. COT3, facilitated by ACAS, is quicker and cost-effective but lacks a legal advice requirement. Settlement agreements are more formal, requiring employees to seek independent legal counsel. While both options prevent tribunal claims, employers and employees should carefully consider their rights and obligations before proceeding.
Employment disputes are an unfortunate reality in the workplace. A range of circumstances can result in an employer needing to negotiate the termination of an employee’s employment contract or resolve disputes amicably.
There are two legally binding routes employers can take to reach an agreement: by a settlement agreement or a COT3 agreement facilitated by the Advisory, Conciliation and Arbitration Service (ACAS). Both routes result in the parties entering a formal contract which records the terms of settlement so the employee will not be able to pursue a claim against the employer in the Employment Tribunal, or if a claim has been issued, agrees not to proceed to hearing. Understanding the differences and implications of each option is vital in selecting the most suitable route for resolving a dispute.
A COT3 is a legally binding contractual agreement between an employer and an employee facilitated through ACAS with the assistance of an ACAS conciliation officer. ACAS is a free and neutral service that can be used at any stage of an employment dispute.
Either an employee or employer can contact ACAS for advice on a potential employment dispute and ACAS will attempt to resolve the issues through conciliation. An agreement reached by the parties following conciliation is legally binding as long as the agreement comprises the formalities of a contract, even if the agreement is only reached orally; however, usually, the terms of settlement will be formally recorded within a COT3 and signed by both of the parties. ACAS will confirm when a legally binding agreement is in place.
A settlement agreement is a legally binding contractual agreement between an employer and an employee that can be used to resolve any disputes and settle specified claims an employee may have against an employer, as well as any future claims arising from employment in a mutually acceptable way. It usually provides for the employer to make an additional financial payment, often referred to as a ‘severance package’ or ‘compensation’ payment above any statutory or contractual payments the employee may receive in exchange for the employee agreeing to waive their rights to bring a claim in the Employment Tribunal.
It is not unusual for the parties to agree the terms of the settlement agreement between themselves to include compensation, confidentiality and other relevant matters. Nonetheless, it is a statutory requirement that an employee must receive independent legal advice on the terms and effect of a settlement agreement and its impact on their ability to pursue claims in the Employment Tribunal before signing it and for it to be binding. Although not a legal requirement, it is usual for the employer to contribute towards the costs of obtaining legal advice.
If Employment Tribunal proceedings have already been commenced, a settlement will usually be recorded in a COT3 through ACAS, and ACAS will notify the Tribunal that the parties have reached a settlement. Alternatively, a settlement agreement may be used; it will often depend on the specific circumstances and risks.
However, COT3s are not limited to only this situation. A settlement recorded in a COT3 can be used to waive statutory claims where a conciliator has ‘taken action’ under S18 of the Employment Tribunals Act as well as contractual claims so long as the employee receives valuable consideration for doing so. As such, an employer is not prevented at the outset of a dispute with an employee from engaging with ACAS to facilitate a settlement by way of a COT3 instead of by way of a settlement agreement to reduce costs and prevent proceedings being issued. As a COT3 does not require either the employer or employee to obtain independent legal advice, it can be an attractive process to an employer, typically being quicker, less formal and involving less costs.
Where assistance from ACAS has not been sought by either the employee or employer and Employment Tribunal proceedings have not been instigated, it is more common for the employer, and sometimes the employee, to propose the parties go down the route of a settlement agreement. Both the employer and employee must ensure the settlement agreement complies with the statutory requirements to ensure a legally binding agreement is entered into. If the employer obtains legal assistance with the preparation of the settlement agreement and, as the employee is required to obtain their own independent legal advice on the terms and effect of the agreement on them, both the employer and employee’s interests will be independently reviewed before either party is legally bound by the terms. This route is usually quicker and more affordable than defending an employment tribunal claim and gives each party control over the settlement and terms.
By either route, the parties can, between themselves, agree the terms on which to terminate an employment contract and offer valuable tools for resolving disputes outside of court. However, whereas a settlement agreement is more formal and requires the employee to obtain legal advice, a COT3 is through an ACAS conciliator who is neutral and will not take sides. ACAS does not advise either party on the merits of potential claims or the prospects of successfully defending those claims. Further, ACAS does not advise on the settlement sums that have been agreed upon between the parties and the process focuses on voluntary negotiation.
When using a COT3, there is a risk to both the employer and employee of circumventing the important step of seeking and obtaining their own legal advice when trying to negotiate a settlement. This means that one or both sides may agree to a financial settlement that does not accurately reflect the true circumstances and positions of the parties.
Employers and employees should approach COT3s with caution. We would recommend seeking legal advice before signing an agreement, as it is important that parties ensure they fully understand what they are agreeing to and signing.
To book an appointment or to discuss further please contact Sara Cox on 01732 375349 [email protected] or Louise Brenlund [email protected] on 01732 375325.
This article is for general information only and does not constitute legal or professional advice. Please note the law may have changed since this article was published. We do not accept responsibility or liability for any actions taken based on the information in this article.
