Don't muzzle whistleblowers with broad NDAs, CFPB warns firms

Financial services firms that require employees to sign nondisclosure agreements that are too broad could be breaking the law, the Consumer Financial Protection Bureau has warned.

In a circular sent to law enforcement agencies and regulators, the CFPB says that some NDAs and other agreements requiring confidentiality could discourage whistleblowers from reporting wrongdoing with threats of retaliation.

If these agreements do not clearly permit communications or cooperation with law enforcement, they could be violating the Consumer Financial Protection Act. The circular also notes that some firms may intimidate potential whistleblowers by warning of lawsuits and potential termination of employment.

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

Firms are entitled to require employees to sign NDAs and similar agreements, such as for the protection of confidential trade secrets, but the CFPB says that these should be carefully worded so as not to intimidate or discourage potential whistleblowers.

An example given by the bureau is where a firm launches an internal investigation and includes in the NDA wording a specific prohibition on discussing the relevant matters with any external parties with potential legal penalties for doing so.

“If an employee involved in or aware of an investigation must sign such an agreement, they may see it as a threat against whistleblowing,” the CFPB says. “An employer can significantly reduce the risk of violating whistleblower protections by ensuring that its agreements expressly permit employees to communicate freely with government enforcement agencies and to cooperate in government investigations.”

Employees of companies who they believe their company has violated federal consumer financial laws are encouraged to send information about what they know to [email protected].