CFPB Circular Warns Against Unlawful NDAs

On July 24, the CFPB issued a circular to law enforcement agencies and regulators clarifying that overly broad confidentiality agreements required by certain employers may violate Section 1057 of the CFPA, which protects whistleblowers. Nondisclosure agreements can violate the CFPA if they discourage employees from reporting suspected financial law violations to governmental authorities or participating in investigations. The Occupational Safety and Health Administration (OSHA) was highlighted as the key entity responsible for addressing retaliation claims under various federal laws, including the CFPA.

The CFPB’s analysis in the circular suggested that confidentiality agreements, when broadly worded and leading individuals to believe that communication with law enforcement regarding potential violations of law would constitute a breach of the agreement, may be seen as a threat of retaliation against whistleblowers, which is prohibited under Section 1057 of the CFPA. Such agreements may imply legal action or job termination for employees who breach confidentiality to report legitimate legal violations.

The circular referenced other regulatory bodies, including the SEC and CFTC, which have acted against companies using confidentiality agreements that obstruct reporting to government agencies. The CFPB advised that the risk of violating whistleblower protections should be reduced. Employers should ensure confidentiality agreements allow free communication with government enforcement agencies and cooperation in government investigations.