The CFPB warned on July 24, 2024,  that confidentiality agreements that employees of a company are required to sign likely violate federal law if those agreements imply that employees could face retaliation from their employer or co-workers if they report what they perceive as unlawful behavior or wrongdoing at the company.

“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,” the Bureau said, in a circular.

The CFPB added, “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.”

The CFPB  said that Section 1057 of the Consumer Financial Protection Act “(a) provides that “[n]o covered person or service provider shall terminate or in any other way discriminate against, or cause to be terminated or discriminated against, any covered employee or any authorized representative of covered employees” for: (1) providing or being about to provide information to the employer, the CFPB, or any other state, local, or federal government authority or law enforcement agency relating to a violation of, or any act or omission that the employee reasonably believes to be a violation of, a law subject to the CFPB’s jurisdiction or prescribed by the CFPB; (2) testifying or intending to testify about such a potential violation; (3) objecting to or refusing to participate in any activity, policy, practice, or assigned task that the employee reasonably believes to be such a violation; or (4) filing any lawsuit or instituting any other proceeding under any federal consumer financial law.”

CFPB Director Rohit Chopra said, “The law enforcement community uncovers serious wrongdoing by financial firms through whistleblower tips. Companies should not censor or muzzle employees through nondisclosure agreements that deter whistleblowers from coming forward to law enforcement.”

The Bureau said that employers may require confidentiality agreements for legitimate purposes, such as to ensure the protection of a company’s confidential information and its trade secrets. However, depending on how they are worded, and the context in which an employee is required to sign or warned about violations of confidentiality, such agreements might lead an employee to reasonably believe that they could be sued or subject to an adverse employment  action if they disclosed suspected violations of federal consumer financial law to government investigators. Such confidentiality agreements violate federal law, the CFPB said. 

We disagree with the CFPB’s expansive reading of Section 1057(a).  The plain text of that provision clearly focuses not on actions taken at the inception of the employment relationship, and not on actions that are uniformly taken with all employees in the routine course of their employment, but rather on adverse actions that are taken on or after the point in time when an employer knows that a specific employee is or will imminently become a whistleblower. 

Nonetheless, in light of the Bureau’s focus on and warning regarding “overly broad” confidentiality agreements that could be viewed as having a chilling effect on employees or former employees reporting legitimate concerns,  financial institutions should review their confidentiality agreements to ensure that they have appropriate language advising employees that nothing in those agreements prohibits or restricts their rights to report concerns to government enforcement agencies, such as the CFPB, the SEC and the DOJ, as well as state and local agencies. 

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