Limitation Period for Claims Involving Breach of Settlement Agreement

Settlement agreements are commonly used in employment disputes to resolve claims arising from dismissal or workplace conflict. In exchange for payment or other consideration, the employee agrees not to pursue legal claims against the employer. When one party later fails to comply with the terms of the agreement, a separate legal issue arises: breach of settlement agreement.

Unlike Employment Tribunal claims, disputes about settlement agreements are usually treated as contractual disputes. This means they are generally enforced through the civil courts, and different limitation rules apply depending on how the agreement was executed.

Understanding the limitation period is essential, as strict time limits determine how long a party has to bring a claim for breach.

What Is a Settlement Agreement?

A settlement agreement is a legally binding contract used to resolve employment disputes. It typically involves the employee agreeing to waive statutory and contractual claims in return for compensation.

To be valid under UK employment law, it must comply with section 203 of the Employment Rights Act 1996, meaning the employee must receive independent legal advice before signing.

Settlement agreements commonly cover:

• Payment of compensation (often referred to as an ex gratia sum)
• Notice pay and accrued holiday pay
• Confidentiality obligations
• Non-disparagement clauses
• Waiver of employment claims

Once signed, both parties are contractually bound by its terms.

Types of Settlement Agreements and Legal Status

There are two main forms relevant to enforcement and limitation:

1. Standard Settlement Agreement (Contract or Deed)

Most settlement agreements are executed as:

• A simple contract, or
• A deed (more formal legal instrument)

2. ACAS COT3 Agreement

A COT3 agreement is:

• Agreed through ACAS Early Conciliation
• Legally binding once concluded
• Enforceable as a contract

Each type has different enforcement routes and limitation implications.

Legal Nature of a Breach of Settlement Agreement

A breach occurs when one party fails to comply with agreed terms, for example:

• Failure to pay agreed settlement sums
• Breach of confidentiality clauses
• Breach of non-disparagement obligations
• Failure to provide agreed references
• Failure to withdraw tribunal proceedings as agreed

A breach of settlement agreement is treated as a contractual claim, not an employment claim.

Limitation Period for Breach of Settlement Agreement Claims

Standard Contractual Limitation Rule

For most settlement agreements treated as contracts:

• 6 years from the date of breach applies under the Limitation Act 1980

This is the standard limitation period for simple contracts in England and Wales.

The limitation clock starts when:

• The breach occurs, not when it is discovered
• Each separate breach may trigger its own limitation period

Settlement Agreements Executed as Deeds

Where a settlement agreement is executed as a deed, a different limitation period may apply.

• 12 years from the date of breach

This reflects the longer limitation period for deeds under UK civil law.

Deeds are commonly used in employment settlement agreements because they provide:

• Stronger enforceability
• Formal execution requirements
• Clearer legal certainty

Limitation Period for COT3 Agreements

COT3 agreements are also treated as binding contracts.

If breached:

• Enforcement is usually through the civil courts
• 6-year limitation period applies (contractual claim)

ACAS may assist with enforcement discussions, but does not replace court enforcement where disputes arise.

Employment Tribunal vs Civil Court Jurisdiction

A key issue is that breach of settlement agreement claims are generally not Employment Tribunal claims.

Employment Tribunal

The tribunal usually cannot enforce settlement agreements directly, except in very limited circumstances linked to procedural issues.

Civil Courts

Most claims are brought in:

• County Court
• High Court (for higher-value disputes)

Civil courts have jurisdiction because the dispute is contractual in nature.

Common Types of Breach Claims

1. Non-Payment of Settlement Sums

The most common breach involves failure to pay agreed compensation by the contractual deadline.

2. Breach of Confidentiality

Settlement agreements often include strict confidentiality clauses. Breach may occur through:

• Public disclosure of settlement terms
• Disclosure of workplace allegations
• Online or media statements

3. Breach of Non-Disparagement Clauses

These clauses prevent negative comments about the employer or employee.

4. Failure to Provide Agreed References

Where a reference is contractually agreed, failure to provide it correctly may constitute breach.

When Does the Limitation Period Start?

The limitation period begins on the date of breach.

Examples:

• If payment is due on 1 January and not made, limitation starts on 1 January
• If confidential information is disclosed on 1 June, limitation starts on that date

For ongoing breaches (such as repeated publications), each publication may create a new limitation period.

Suspension or Extension of Time Limits

Unlike Employment Tribunal claims:

• There is no ACAS Early Conciliation requirement for breach of settlement agreement claims
• Limitation is not automatically paused
• Standard civil limitation rules apply strictly

Extensions are rare and generally governed by limited equitable principles such as:

• Fraudulent concealment (in specific circumstances)
• Disability or lack of capacity (in narrow legal contexts)

Common Legal Issues in Settlement Agreement Disputes

1. Misclassification of the Claim

A frequent issue is attempting to bring breach of settlement claims as employment claims. These are generally contractual disputes.

2. Delay in Enforcement

Waiting too long can result in claims becoming statute-barred, even where breach is clear.

3. Multiple Breaches

Separate breaches may have different limitation start dates, requiring careful analysis.

4. Unclear Drafting of Terms

Ambiguity in settlement wording can lead to disputes over whether a breach has occurred.

Practical Steps in Assessing Limitation

1. Identify the type of agreement (contract, deed, or COT3)
2. Confirm the date of each alleged breach
3. Determine whether the claim is contractual
4. Apply the correct limitation period (6 or 12 years)
5. Consider whether multiple breaches create separate time limits
6. Check whether any court proceedings are already ongoing

Consequences of Missing the Limitation Period

If a claim is brought out of time:

• The court is likely to strike it out
• The claimant loses the right to enforce the agreement
• Even valid claims may become legally unenforceable
• Costs consequences may follow if proceedings were issued late

Final Thoughts

Claims involving breach of settlement agreements in England and Wales are generally governed by contract law rather than employment law. The standard limitation period is six years for simple contracts, extended to twelve years where the agreement is executed as a deed. COT3 agreements also follow the six-year contractual limitation rule.

The limitation period begins on the date of breach, not discovery, and each breach may trigger its own time limit. Unlike Employment Tribunal claims, there is no ACAS-based extension mechanism, making timely enforcement essential.

Understanding the contractual nature of settlement agreements and the applicable limitation period is critical to ensuring enforceability and avoiding loss of legal rights.