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COT3 Agreement

What is a COT3 Agreement?

During the course of employment tribunal proceedings, parties are encouraged to undertake settlement discussions, normally via ACAS. Should these discussions lead to a settlement being reached between the parties, a legally binding agreement will need to be drawn up. This is called a COT3.

A COT3 is a type of settlement agreement and will restrict the employee from bringing specific claims in the employment tribunal, in relation to the course of conduct which they have already complained about. This is normally in exchange for a sum of money paid to the Claimant by the Respondent.

Note that a COT3 can only be used to settle a claim or dispute where ACAS have facilitated, or have at least been involved, in settlement discussions. ACAS will usually be reluctant to ‘rubber stamp’ an agreement with which they have had no prior involvement. If the parties wish to settle a claim without involving ACAS, a ‘normal’ settlement agreement must be used.

Reaching an agreement

Settlement negotiations can often take some time before any agreement is reached between the parties. As the parties may have very different expectations, it is often easiest to ensure all negotiation takes place, and that any settlement offers are made, via the ACAS conciliator assigned to the case.

The final terms of the COT3 will reflect what has been agreed by the Claimant and Respondent; usually the employee and employer. The Claimant will then withdraw their employment tribunal claim to bring matters to a close.

Unlike normal settlement agreements, there is no requirement for the Claimant to obtain independent legal advice for the COT3 to be legally binding.

Terms of the agreement

Terms will of course vary between agreements and every COT3 should be carefully drafted to reflect the specific situation. However, a COT3 Agreement will often include the following:

  • Termination Date and termination payment (if an employee is exiting an organisation)
  • Payment in respect of any untaken annual leave
  • A clause specifying whether the employee will be expected to work their notice, or whether they will receive PILON or Garden Leave.
  • A standard clause, which states the termination payment is being made in full and final settlement of all and any claims the employee has or could have against the employer.
  • A confidentiality clause
  • A clause pertaining to when payment will be made
  • A clause pertaining to the payment of tax and national insurance on the termination payment.
  • A reference letter clause

Payment

The COT3 Agreement should set out the full breakdown of payments due to the employee and also whether the sum/sums will be paid tax free or will be subject to tax and National Insurance.  

A payment of up to £30,000 compensation can usually be paid without tax being deducted if it is an ‘ex-gratia’ payment. This means it is something that is a compensatory, voluntary payment, rather than a contractual payment, such as accrued holiday pay.