CFPB Warns Against Intimidation of Whistleblowers
In a circular to law enforcement agencies and regulators, the CFPB warned that companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing.
The CFPB stated that "confidentiality agreements can be entered into for legitimate purposes, such as to ensure the protection of confidential trade secrets," but the wording of the agreement and the context in which it is employed "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." The agency cautioned that these threats could lead to violations of Section 1057 of the Consumer Financial Protection Act ("Employee protection") and may be considered discriminatory activity against whistleblowers.
Commentary
Congress included a whistleblower provision in the Dodd-Frank Act specifically protecting whistleblowers from retaliation for reporting violations of consumer financial protection laws. Only a few years ago, the CFPB streamlined how workers in the technology industry can submit tips about potential violations of federal consumer financial laws. Other agencies, including the DOJ, SEC, FinCEN, FTC and the CFTC have also focused on ensuring whistleblower protections.
This CFPB circular is an important reminder of how critical it is to craft appropriate, and not overly restrictive, NDAs. As emphasized in the circular, while ensuring the protection of confidential trade secrets is a legitimate purpose for NDAs, employers should carefully scrutinize whether the wording and context of their NDAs could give rise to employees feeling that they "would face lawsuits or other retaliation for reporting suspected misconduct to governmental authorities."
The key takeaway here is that companies should provide a clear carve out for potential whistleblower disclosures. Careful drafting is especially the case given the constant change in the financial services industry and the fintech sector in particular, compounded by the fast pace of technological innovation and how frequently employees change jobs.