Certain non-disclosure agreements could violate the law by impeding investigations.
Organizations will face consequences if they intimidate potential whistleblowers by forcing them to sign broad nondisclosure agreements (NDAs) that could prevent allegations of misconduct from coming to light. The practice would be considered breaking the law.
That was the word from the Consumer Financial Protection Bureau (CFPB) in a press release issued in late July that has spurred discussion in C-suites and board rooms since. The CFPB issued a circular to law enforcement agencies and regulators explaining how sweeping NDAs that do not clearly permit communication with law enforcement may intimidate employees from disclosing misconduct or cooperating with investigations.
“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.”
Congress included a provision in the Consumer Financial Protection Act (CFPA) specifically protecting whistleblowers from retaliation for reporting violations of consumer financial protection laws. “Although nondisclosure agreements can be entered into for legitimate purposes, such as ensuring the protection of confidential trade secrets, such agreements, depending on how they are worded and the context, could lead employees to believe they would face lawsuits or other retaliation for reporting suspected misconduct to governmental authorities,” the press release said.
The circular highlights egregious circumstances that would typically violate the law, the release said. One example is when an employer demands a confidentiality agreement during an internal investigation, warning employees not to discuss the relevant matters with any external parties and saying they may be subject to legal penalties for doing so.