On July 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued guidance that has put financial regulators and employers on notice. The guidance warns that requiring employees to sign broad confidentiality or nondisclosure agreements that may deter them from reporting alleged misconduct to federal watchdogs or engaging in whistleblower activity could potentially violate federal whistleblower protections.
The CFPB published a circular, Consumer Financial Protection Circular 2024-04, which highlights the risks associated with using broadly worded confidentiality and nondisclosure agreements. While acknowledging that such agreements may serve legitimate purposes, the CFPB cautioned that they could contain language that unlawfully deters employees from reporting misconduct or cooperating with investigations, thus impeding the enforcement of federal whistleblower protections.
This circular is part of a broader trend among federal agencies to address concerns related to confidentiality and nondisclosure agreements and their potential impact on whistleblower protections. The U.S. Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission have all ramped up enforcement of their whistleblower programs in recent years, following the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In the news release accompanying the circular, CFPB Director Rohit Chopra emphasized the importance of whistleblowers in uncovering serious wrongdoing by financial firms. He stated that companies should not use confidentiality agreements to censor or muzzle employees, as this could deter whistleblowers from coming forward to law enforcement agencies.
Federal agencies have taken enforcement actions against the use of confidentiality and nondisclosure agreements in recent years. For example, the CFTC fined a commodities trader $55 million for impeding employees from reporting potential violations of the Commodity Exchange Act and CFTC regulations. Similarly, the SEC fined an investment firm $10 million for violating whistleblower protections by including confidentiality provisions in agreements that did not allow for reporting potential securities violations to the SEC.
The CFPB’s circular specifically addresses how confidentiality agreements may violate Section 1057 of the Consumer Financial Protection Act, which prohibits employers from taking adverse actions against employees for engaging in whistleblower activity. The agency highlighted that agreements containing language that could be perceived as threats or that do not include exceptions for whistleblower rights could potentially violate this provision.
The CFPB also emphasized the importance of the context in which employees are required to sign confidentiality agreements. Agreements signed during internal investigations or after employees become aware of potential misconduct could be perceived as threats, further deterring whistleblowers from coming forward.
Employers, particularly those in the financial sector, are advised to review the wording of their confidentiality agreements and nondisclosure agreements in light of the CFPB’s guidance. Ensuring that agreements include express exceptions for whistleblower rights and do not contain language that could be perceived as threats is crucial to complying with federal whistleblower protections.
In conclusion, the CFPB’s guidance serves as a reminder to employers of the importance of upholding whistleblower protections and avoiding practices that could deter employees from reporting misconduct. By reviewing and potentially revising their confidentiality agreements and nondisclosure agreements, employers can demonstrate their commitment to fostering a culture of transparency and accountability within their organizations.