On July 24, 2024, the CFPB issued a circular detailing how companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing. 

Under Section 1057(a) of the Dodd-Frank Act, covered persons are prohibited from terminating or otherwise discriminating against covered employees for engaging in whistleblowing activity. The term “discriminate against” encompasses a variety of adverse actions that a covered person may take against employees.

The Bureau notes that while confidentiality agreements can be entered into for legitimate purposes, such as ensuring the protection of trade secrets, they can also be worded and employed in such a way that could lead an employee to reasonably believe that they would be subject to adverse actions if they disclosed information related to suspected violations of law to government investigators. The circular states that certain confidentiality agreements may forbid the sharing of information with outside parties, with no acknowledgment of, and exception for, the exercise of whistleblower rights. A reasonable employee, who is aware of an internal or government investigation into malfeasance, may interpret their required entry into such an agreement as a threat against reporting information to the government. 

The circular states that even if a company’s confidentiality agreement accounts for whistleblowers, the language may not be clear, or it might be confusing. For example, an agreement that forbids sharing information with third parties “to the extent permitted by law” may technically allow whistleblowing; however, an employee, who may not know that the law forbids restrictions on whistleblowing but understands that violating the agreement could lead to adverse employment actions, might reasonably interpret the agreement as prohibiting information to a law enforcement agency or voluntarily cooperating in a government investigation.

The circular offers some guidance. It states that an employer can significantly reduce its risk of violating Section 1057 by ensuring that its agreements explicitly allow employees to communicate freely with government enforcement agencies and to cooperate in government investigations.

Putting it into Practice: The CFPB’s circular serves as a policy statement under the Administrative Procedure Act. Although it does not “impose any legal requirements on external parties,” the circular communicates the Bureau’s interpretation of the law and indicates how it intends to proceed with supervisory and enforcement actions.