The Consumer Financial Protection Bureau has added itself to the list of agencies that view broad confidentiality agreements given to employees with skepticism.

In a circular published on July 24, the CFPB stated that requiring employees to sign a broad confidentiality agreement could violate Section 1057 of the Consumer Financial Protection Act, or CFPA.¹ Employers should reevaluate their confidentiality agreements with employees in light of this statement.

In the circular, the CFPB takes the position that an overly broad confidentiality agreement constitutes a threat to an employee for whistleblower activity in violation of the CFPA.

It states that "certain circumstances requiring employees to sign confidentiality agreements that are so broad as to forbid or otherwise dissuade employees from sharing information about potential law violations with the government or cooperating with a government investigation can amount to a threat to punish."²

This position is based on an expansive reading of the statute. Section 1057 of the CFPA provides antiretaliation protections for covered employees that prohibit employers from terminating or discriminating against employees for providing information to the CFPB relating to a violation of a law within the CFPB's jurisdiction.

While "discriminate against" in other contexts involves actions like demotions, transfers or failures to hire, the circular emphasizes that in the CFPA, the term "discriminate against" is to be construed broadly. The circular then analogized the CFPA to other statutes where threatening an employee for whistleblower activity is considered a form of discrimination.

Particularly, provisions in agreements saying that an employer may enforce the confidentiality agreement in court can be read as a threat to the employee for whistleblowing.

The policy justification for this position is that potential CFPB witnesses may be nervous to provide testimony on account of a confidentiality agreement, which would hamper the CFPB's ability to investigate and address potential complaints.

While the CFPB's circulars are general policy statements rather than binding rules, the publication of this circular gives employers insight into the agency's perspective on the law. An employee who believes they have been given a nondisclosure agreement in violation of the CFPA may file a complaint with the U.S. Department of Labor, which may then pursue action against the employer.

The CFPB is not the only agency to view broad confidentiality agreements as a threat to punish for whistleblower activity. The circular's logic is in large part based on parallels between whistleblowing to the CFPB and the U.S. Securities and Exchange Commission.

The SEC has also taken the position that overly broad nondisclosure and confidentiality agreements violate provisions protecting whistleblowers from discrimination or retaliation.³ While the CFPB's circular is theoretical, the SEC's position has had real consequences for employers.

In the fall of 2023, the SEC settled charges against an employer, D.E. Shaw & Co. LP, for requiring overbroad confidentiality agreements with current or former employees.⁴ There, the agreement at issue defined confidential information broadly to include information gained during the course of employment that could be damaging if disclosed.

As part of the settlement, the employer revised its confidentiality agreement to include disclaimers that it did not limit whistleblower activity or employee rights to contact regulators.

Even further, the U.S. Commodity Futures Trading Commission announced in June that it had settled charges against an employer, Trafigura Trading LLC, noting among the violations that the employer had impeded voluntary communications with the CFTC through requiring the employees to sign employment agreements with broad nondisclosure provisions.⁵

The agency stated that the nondisclosure provisions "caused confusion that resulted in an impediment to voluntary and direct communication with the CFTC about possible" violations of law.⁶

The National Labor Relations Board has also cautioned employers, noting that broad confidentiality agreements tend to interfere with, restrain or coerce an employee's exercise of rights provided by Section 7 of the National Labor Relations Act.⁷

In light of this guidance from the CFPB, employers should rereview their confidentiality agreements. In drafting confidentiality agreements, it is important to balance the interest in keeping information confidential with avoiding the risk of violating an employment law by impeding protected activity including whistleblowing.

At first blush, it may seem astute to draft broad confidentiality agreements as a protectionary measure. Many employers hope to avoid negative information regarding their company from being aired to the public. Still, offering confidentiality provisions that prevent disclosure generally comes with the risk of action from these agencies.

Confidentiality provisions preventing general disclosure about the workplace would encompass information that employees are legally allowed to disclose. It is important to consider what information truly needs protection.

The CFPB acknowledged that confidentiality provisions tailored to protect specific types of information, like trade secrets and customer or employee personal identification information, would likely pass muster.

A properly tailored confidentiality provision avoids the risk of chilling protected activity under the NLRA or whistleblower activity to the SEC and CFPB.

Additionally, disclaimer language should be updated or added to agreements to ensure no employees misinterpret confidentiality agreements as prohibiting whistleblower activity. Existing disclaimers should be reviewed and updated to account for both the SEC and CFPB's recent guidance.

The circular notes that it is common practice to include disclaimers that the confidentiality agreement only prevents disclosure "to the extent permitted by law." According to the circular, this is not sufficient protection for employers.

The CFPB takes the position that because employees may not understand that language to be a safe harbor for whistleblowing, they may still be chilled from coming forward.

Accordingly, disclaimers should be updated to make clear that any confidentiality provision does not prevent whistleblowing, communication or cooperation with government enforcement agencies.

It may be tempting for employers to find a generic confidentiality agreement and stick with it. However, that decision comes with risk. The issuance of the CFPB's circular represents a growing agency effort to address overbroad confidentiality agreements.

It demonstrates the importance of ensuring confidentiality agreements, whether given at the beginning of employment, or at another time such as in a severance agreement, are carefully drafted to avoid unintended consequences.

Outdated form agreements that predate the SEC and CFPB's guidance regarding confidentiality agreements should be reviewed.

Counsel should revisit any boilerplate language in form agreements and instead draft language that is tailored to the specific circumstance to ensure it both protects interests and avoids liability.

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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Consumer Financial Protection Circular 2024-04 - Whistleblower protections under CFPA Section 1057.

[2] Id.

[3] SEC Charges D. E. Shaw with Violating Whistleblower Protection Rule, SEC.

[4] Id.

[5] CFTC Orders Trafigura to Pay $55 Million for Fraud, Manipulation and Impeding Communications with the CFTC - First CFTC Action Against an Entity for Impeding Whistleblower Communications, CFTC.

[6] Id.

[7] Guidance in Response to Inquiries about the McLaren Macomb Decision, Office of the General Counsel.