CFPB Issues Circular Saying NDAs that Deter Whistleblowing May Break the Law

The Consumer Financial Protection Bureau (CFPB) recently issued a circular to regulators and law enforcement agencies, explaining that it could be unlawful for companies to require employees to sign broad nondisclosure agreements that could deter whistleblowing. Some nondisclosure agreements that do not clearly allow communication with law enforcement agencies could intimidate employees from disclosing misconduct, which could violate federal whistleblower protections.

“If, due to a confidentiality agreement, an employee perceives that they could suffer adverse consequences for cooperating in such circumstances, then the CFPB’s ability to carry out its statutory functions to protect consumers is compromised,” said the CFPB. “Confidentiality agreements that limit the ability of employees to communicate with government enforcement agencies or speak freely with investigators undermine the CFPB’s ability to enforce the law.”

According to Consumer Finance Monitor, employers may require confidentiality agreements for legitimate purposes like ensuring the protection of the company’s trade secrets and confidential information. However, sometimes those agreements are worded in a way that makes employees believe that they could be sued or terminated if they disclosed suspected violations. 

The Bureau’s circular highlights extreme circumstances that would normally break the law, such as when an employee requires a confidentiality agreement during an internal investigation. Employers can reduce the risk of violating whistleblower protections by ensuring its agreements obviously express that employees can freely communicate with government enforcement agencies. 

The CFPB has previously worked to protect whistleblowers and collect reports on misconduct, as it streamlined how workers in the technology industry can submit tips on potential violations of federal consumer financial laws.