Employers: you cannot settle SMP claims without actually paying SMP

17th December 2019

Man talking to woman who has her head in her hands

Settlement agreements

Settlement agreements are a useful tool for employers to resolve disputes. Provided the necessary formalities are followed, it is easy to assume that anything the employee is willing to sign is settled.

The recent case of NVCS Ltd -v- (1) Commissioners for HMRC (2) Mrs Dare (NVCS) is a reminder that that is not the case and you cannot enter into a binding agreement that purports to be in ‘full and final settlement’ of a claim for statutory maternity pay (SMP) unless you have actually paid the employee their SMP.

It can also be tempting to negotiate in overall figures, without itemising how the payment has been determined. Employers are becoming more aware of the tax risks of doing this with notice pay and other contractual entitlements, but this case is a warning that failing to itemise some statutory payments may result in the employee still being entitled to claim for them, even after they have signed the waiver.

Claims against the employer

Employees with claims against their employer can settle these claims via a settlement agreement or a COT3. A COT3 is very similar to a settlement agreement, but used where ACAS have assisted to conciliate the claim.


Do you need help with your claim? Contact our Employment and Immigration team now.


Employees can settle the majority of claims they may have against employers, but a few claims are carved out and can only be paid in full, not settled. As NVCS learned to their cost, this list includes SMP, Statutory Paternity Pay and Statutory Adoption Pay.

Mrs Dare was employed by NVCS Ltd in a sales role and, following issues with her performance which arose after she had notified her employer of her pregnancy, she went off sick because of work-related stress.

Settlement negotiations were initiated, via ACAS, and Mrs Dare sought a lump sum of £25,000, to take into account the £8,000 SMP she was due to receive from her employer. The parties reached a settlement in the sum of £10,000. This was recorded in a COT3 agreement.

In November 2016, Mrs Dare would have been due to start receiving SMP and nothing was paid (unsurprisingly, since NVCS believed they had included it in the settlement). Mrs Dare notified HMRC of this failure and it determined that she was entitled to payment. NVCS Ltd successfully appealed the decision and the matter was then referred to the First-tier Tax Tribunal, who found in favour of Mrs Dare.

employees claims, employee vs employer, employment disputes


The Tax Tribunal confirmed that under section 164 of the Social Security Contributions and Benefits Act 1992, any agreement purporting to limit or exclude an employee’s right to SMP is void. Whilst the £10,000 paid more than covered Mrs Dare’s £8,000 SMP entitlement, it was held that SMP was not included in this compensatory payment because there was no express reference to SMP in the COT3 agreement.

Consequently, it was held that Mrs Dare had not been paid SMP under the terms of the COT3 agreement and she was owed this in addition to the £10,000 compensation she had already received.

Top Tips

Judgements of the tax Tribunal are not binding on employment Tribunals, but they are often taken into account. This case reminds employers that:

  • they should take professional legal advice as to the terms of any settlement or COT3 agreement. Whilst ACAS conciliators assist in reaching agreed terms of a COT3 agreement, they are not in a position to directly advise either party and will not advise employers of these types of risks
  • where a settlement sum includes a statutory payment, you should clearly set out the amount of the statutory payment and how and when it will be paid
  • for any settlement that includes elements of taxable and tax-free pay, you should clearly itemise the tax status of each element of the payment.


For more advice on this or further information, please contact Rachel Roberts at [email protected] or on 01242 246 455.