WASHINGTON—The Consumer Financial Protection Bureau (CFPB) has issued a circular to law enforcement agencies and regulators explaining how companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing.
According to the CFPB, the circular explains how imposing sweeping nondisclosure agreements that do not clearly permit communication with law enforcement may intimidate employees from disclosing misconduct or cooperating with investigations. That could impede investigations and potentially violate federal whistleblower protections, according to the Bureau.
‘Important Role’
“Whistleblowing plays an important role in addressing illegal and unethical misconduct,” the CFPB said. “In the Consumer Financial Protection Act (CFPA), Congress included a provision specifically protecting whistleblowers from retaliation for reporting violations of consumer financial protection laws. Although nondisclosure agreements can be entered into for legitimate purposes, such as ensuring the protection of confidential trade secrets, such agreements, depending on how they are worded and the context, could lead employees to believe they would face lawsuits or other retaliation for reporting suspected misconduct to governmental authorities.”
Potential Violations
The Bureau said its new circular explains that financial institutions may violate the CFPA when:
- They require employees in certain circumstances to sign broad nondisclosure agreements, or other types of agreements that contain confidentiality requirements
- The agreements do not clearly permit communications or cooperation with law enforcement. “Confidentiality agreements often specify that the employer may file a lawsuit or terminate an employee for violating the terms of the agreement,” the CFPB said.
‘Egregious Circumstances’
According to the CFPB, the circular highlights particularly egregious circumstances that would typically violate the law.
“One example is when an employer demands a confidentiality agreement during an internal investigation, warning employees not to discuss the relevant matters with any external parties and saying they may be subject to legal penalties for doing so,” the CFPB said. “If an employee involved in or aware of an investigation must sign such an agreement, they may see it as a threat against whistleblowing. An employer can significantly reduce the risk of violating whistleblower protections by ensuring that its agreements expressly permit employees to communicate freely with government enforcement agencies and to cooperate in government investigations.”