On July 24, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a circular regarding whistleblower protections under the Consumer Financial Protection Act (“Act”). The CFPB warns employers that confidentiality agreements may have the potential to chill workers’ rights and violate the Act.
In her latest Employment Law Blog, KingSpry’s Employment Law Chair, Avery E. Smith, Esq., reviews the Consumer Financial Protection Bureau’s circular and offers guidance to employers.
Background
Whistleblowing has long been recognized as an important role in preventing and stopping illegal and unethical conduct in employment practices. Currently, the Occupational Safety and Health Administration (“OSHA”)’s Whistleblower Protection Program enforces anti-retaliation provisions of federal laws, including the Act.
Both the CFPB and the Act serve to protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. The circular focuses on Section 1057 of the Act, which offers protection to whistleblowers from termination, discrimination, or retaliation when (suspected) violations are reported.
Use of Confidentiality Agreements
The CFPB states that many entities, including those covered by the Act, use nondisclosure agreements (“NDAs”) or other confidentiality agreements. While these agreements are often entered into for legitimate purposes, the CFPB examined whether the broadness of some provisions prevent or dissuade employees from reporting (suspected) violations.
Question Presented
The CFPB reviewed the following question: Can requiring employees to sign broad confidentiality agreements violate Section 1057 of the Act and undermine the CFPB’s ability to enforce the law?
The CFPB’s Response
Yes. The CFPB concluded that confidentiality agreements 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.” Despite legitimate purposes for the agreements, such as protecting trade secrets, the threat of silencing whistleblowers may “impede investigations” and hinder the CFPB’s efforts to identify violations of the Act.
Guidance for Employers
The CFPB’s circular does not prohibit nor restrict the use of confidentiality agreements; however, it does suggest that employers must be cognizant of whistleblower protections when implementing such agreements.
Employers are encouraged to:
- Include language in confidentiality provisions that permits an employee to communicate with government enforcement agencies or law enforcement;
- Limit the scope of confidentiality agreements to legitimate business interests based upon the employee’s position; and
- Add disclaimers to confidentiality agreements indicating that such provisions do not prohibit whistleblower protections or activity.
