The Consumer Financial Protection Bureau today issued a circular to “remind regulators and the public” that requiring employees to sign broad confidentiality agreements—without expressly permitting employees to communicate freely with government enforcement agencies—could violate legal protections for whistleblowers. In the document, the bureau says that while nondisclosure agreements can be entered into for legitimate purposes—such as the protection of trade secrets—they also could “lead an employee to reasonably believe that they would be sued or subject to other adverse actions if they disclosed information related to suspected violations of federal consumer financial law to government investigators.”
Section 1057 of the Consumer Financial Protection Act makes it unlawful to “discriminate” against an employee for whistleblowing with respect to suspected violations of federal consumer financial law. The circular states that the risk of a Section 1057 violation is more pronounced when an employer demands a confidentiality agreement during an internal investigation at the company.
“When an employee participates in an investigation or otherwise is made aware of possible wrongdoing and simultaneously is required to sign such an agreement, there is a heightened risk that the employee reasonably would view the requirement to sign as a threat by the employer to take adverse action if the employee were to engage in whistleblowing activity,” the CFPB said.
Other examples of potential violations of Section 1057 include suing, threatening to sue, or taking or threatening to take adverse action against employees for engaging in whistleblowing, or requiring employees to sign confidentiality agreements so broad as to forbid or dissuade them from sharing information about potential law violations, according to the CFPB. The bureau also cautioned that an employment clause prohibiting the sharing of “information with third parties ‘to the extent permitted by law’ may technically permit whistleblowing,” but in practice may impermissibly chill employees’ reports to a government agency.
“An employer can significantly reduce the risk of this kind of perception—and thus of violating Section 1057—by ensuring that its agreements expressly permit employees to communicate freely with government enforcement agencies and to cooperate in government investigations,” it said.
