This article applies to England, Wales and Scotland.
In brief: A COT3 is a legally binding agreement, drawn up through ACAS, that settles an employment tribunal claim or potential claim. Unlike a settlement agreement, you do not need independent legal advice for a COT3 to be binding. Once agreed, you cannot pursue the same claim at tribunal. Most COT3s are reached during early conciliation.
Last updated: March 2026
By Yerty | This guide was created using analysis of tribunal cases and official ACAS/Gov.uk guidance.
If your employer or an ACAS conciliator has mentioned a "COT3" and you have no idea what it means, you're not alone. It's one of those terms that sounds like a tax form but could determine how your workplace dispute ends, what you're paid, and what rights you give up.
This guide explains what a COT3 is, how it works, what it typically includes, and what to think about before agreeing to one.
Important: This guide provides information about UK employment law. Yerty is not a law firm and does not provide legal advice. Every situation is different. If you've been offered a COT3 and are unsure whether the terms are fair, consider speaking to a solicitor for advice specific to your circumstances.
What is a COT3?
A COT3 is a document that records a legally binding agreement to settle an employment dispute. It's facilitated by ACAS (the Advisory, Conciliation and Arbitration Service) as part of the early conciliation process or during conciliation once a tribunal claim has already been filed.
The name comes from the form ACAS uses to record the agreement. Once both parties agree to the terms, the COT3 is binding, and the employee gives up the right to take the matter further at an employment tribunal.
COT3 agreements are one of only two ways to create a legally binding settlement of statutory employment rights in England, Wales and Scotland. The other is a settlement agreement (formerly known as a compromise agreement).
How is a COT3 different from a settlement agreement?
This is the question most people ask first, and the differences matter.
| COT3 | Settlement Agreement | |
|---|---|---|
| Who's involved? | ACAS conciliator facilitates | Direct between employer and employee |
| Legal advice required? | No | Yes, from an independent adviser (usually a solicitor) |
| Who pays for advice? | You can ask, but there's no obligation | Employer typically contributes to your legal fees |
| Scope of claims waived | Can be broader, covering potential future claims if clearly worded | Must relate to "particular complaints" |
| When is it used? | During ACAS early conciliation or after an ET1 is filed | Often before any formal claim, typically during exit negotiations |
| Typical length | Shorter, often 1-3 pages | Longer, more detailed, often 10+ pages |
The key practical difference: a COT3 does not require you to get independent legal advice before it becomes binding. The ACAS conciliator will explain the terms and their effect, but they are neutral and do not represent either side.
When does a COT3 come up?
A COT3 typically arises in two situations.
During early conciliation. You've contacted ACAS before making a tribunal claim, and your employer makes an offer to resolve the dispute. If you agree, the conciliator records the terms on a COT3. According to ACAS data, around 38% of early conciliation cases result in a settlement, and our analysis of employment settlement statistics shows that the majority of disputes that resolve do so before ever reaching a hearing.
After a tribunal claim is filed. Even once an ET1 has been submitted, ACAS continues to offer conciliation. If the parties reach an agreement at any point before the hearing, a COT3 is the standard way to record it. Conciliation can continue right up to the day of the hearing itself.
What does a COT3 typically include?
The specific terms depend on what you and your employer agree, but most COT3 agreements cover:
A payment. This is usually a lump sum in settlement of your claim. The COT3 will state the amount, the payment date, and how it should be taxed. The first £30,000 of a termination payment is normally tax-free under current HMRC rules, though the tax treatment depends on what the payment relates to.
A waiver of claims. You agree not to pursue the specific claim (or claims) covered by the COT3. The wording here matters because a COT3 can be drafted broadly enough to cover claims you haven't yet raised.
Confidentiality. Most COT3 agreements include a clause requiring both parties to keep the terms, and sometimes the existence, of the agreement confidential.
A reference. If an agreed reference is part of the deal, the exact wording should be attached to the COT3 as an appendix. Don't rely on a verbal promise.
Non-derogatory comments. A mutual agreement not to say negative things about each other publicly.
You can negotiate what goes into a COT3. It can include things a tribunal couldn't order, such as an apology, a specific reference, or an agreement about what the employer will say if asked about your departure.
What to think about before agreeing
A COT3 is final. Once you agree, you cannot change your mind or pursue the same claim later. The ACAS conciliator will explain the terms, but they won't tell you whether the offer is fair or advise you on whether to accept.
Before agreeing, you may want to consider:
- What claims are you waiving? Make sure you understand whether the wording covers only the specific dispute or broader claims you might not have considered.
- Is the amount reasonable? This is where independent advice becomes valuable, even though it isn't legally required. A solicitor or trade union representative can help you assess whether the offer reflects what you might achieve at tribunal.
- Are there non-financial terms you need? A reference, an agreed leaving date, continuation of benefits, or payment of accrued holiday are all negotiable.
- What are the tax implications? Not all payments are treated the same way by HMRC. Payments in lieu of notice, for example, are taxed as earnings.
What happens if your employer doesn't pay?
If your employer agrees to a COT3 and then doesn't pay, you have enforcement options. You don't need to go back to tribunal to prove your original claim.
You can use the government's free Employment Tribunal Penalty Enforcement scheme. Your employer will receive a warning notice giving them 28 days to pay. If they still don't pay, they can be fined up to £5,000, and you can apply to the courts to enforce the debt.
For most COT3 settlements, the ACAS and Employment Tribunal Fast Track enforcement scheme is available, which uses High Court Enforcement Officers to recover the money.
Common misconceptions
"I need a solicitor for a COT3 to be valid." You don't. Unlike a settlement agreement, a COT3 is binding without independent legal advice. That said, getting advice before agreeing is still a good idea, particularly if the sums involved are significant or the waiver is broad.
"The ACAS conciliator is on my side." They're not. ACAS is neutral. The conciliator's role is to facilitate agreement, not to represent you or check that the deal is fair to you. They will explain the terms, but they won't negotiate on your behalf or tell you whether to accept.
"I can change my mind after signing." In almost all cases, no. A COT3 is binding from the moment both parties agree to the terms, even before the physical document is signed. Verbal agreement communicated through the ACAS conciliator is enough.
Frequently Asked Questions
What does COT3 stand for?
The name is believed to come from Form 3 used by the former Central Office of Tribunals. In practice, it simply refers to the standard ACAS settlement document used to record agreed terms between an employee and employer.
Can I negotiate the terms of a COT3?
Yes. A COT3 is an agreement, not something imposed on you. You can propose changes to the amount, the scope of the waiver, confidentiality terms, reference wording, and any other terms. The ACAS conciliator can relay counteroffers between both sides.
Do I have to pay tax on a COT3 settlement?
It depends on what the payment covers. The first £30,000 of a genuine termination payment is normally tax-free. However, payments for notice pay, holiday pay, or contractual bonuses are taxed as normal earnings. The COT3 should specify how the payment is categorised.
How long does it take to agree a COT3?
There's no fixed timeline. Some COT3 agreements are reached within days during early conciliation. Others take weeks, particularly if a tribunal claim has been filed and both sides are negotiating. The early conciliation period itself can last up to 12 weeks.
Can a COT3 cover claims I haven't raised yet?
Yes, if the wording is broad enough. This is one reason to read the terms carefully or get independent advice. A broadly worded COT3 could prevent you from bringing related claims in the future, even ones you weren't aware of when you signed.
What if I've already filed a tribunal claim?
You can still agree a COT3 at any point before the hearing. The ACAS conciliator will notify the tribunal that the claim has been settled, and the case will be closed.
Is a COT3 confidential?
Most COT3 agreements include a confidentiality clause, but this is negotiable. Employment tribunal hearings, by contrast, are public. Settling via COT3 keeps the details private, which is often a factor in both sides' decision to agree.
What happens to my tribunal time limits during COT3 negotiations?
Time spent in ACAS early conciliation pauses your tribunal deadline. However, once the early conciliation certificate is issued, your clock restarts. If negotiations are ongoing but conciliation has formally ended, you may need to file your ET1 to preserve your right to claim while continuing to negotiate.
Sources
- "How the process works", ACAS, 2026 — https://www.acas.org.uk/early-conciliation/how-early-conciliation-works
- "Getting paid as part of an Acas settlement", ACAS, 2026 — https://www.acas.org.uk/early-conciliation/getting-paid-as-part-of-an-acas-settlement
- "Conciliation up to and during tribunal", ACAS, 2026 — https://www.acas.org.uk/early-conciliation/conciliation-up-to-and-during-a-tribunal-claim
- Employment Rights Act 1996, Section 203 — https://www.legislation.gov.uk/ukpga/1996/18/section/203
- Employment Tribunals Act 1996, Section 18 — https://www.legislation.gov.uk/ukpga/1996/17/section/18