Make Sure Non-Disclosure Agreements Don’t Stymie Whistleblowing

Small businesses who enter into non-disclosure agreements (NDAs) with employees need to ensure that those documents clearly delineate that they will not be used to discriminate against those who engage in “whistleblower” activity—or such employers could potentially face unpleasant regulatory consequences.

This was underscored in late July, when the federal Consumer Financial Protection Bureau (CFPB) issued a “reminder” that the Consumer Financial Protection Act establishing the agency bars employers from either firing or otherwise discriminating against employees who participate in whistleblower activity, assuming the business in question is regulated by the CFPB.

The CFPB “circular” on the topic noted that if such businesses “require their employees to enter into broad confidentiality agreements that do not clearly permit communications with government agencies or cooperation with law enforcement,” they could both violate whistleblower protection statutes and, at the same time, block the ability of government agencies to enforce the law.

Among other potential whistleblower scenarios, the Criminal Antitrust Anti-Retaliation Act (CAARA) of 2020 stipulates that employers may not “discharge, threaten, or in any other manner discriminate against” employees who blow the whistle in cases of criminal antitrust violations, such as those covered under Section 1 of the Sherman Act.

Employers who violate CAARA, as determined by the federal Occupational Safety and Health Administration (OSHA) can be forced to rehire the employee, pay lost wages, reinstate benefits, and fork over litigation costs and attorney’s fees. Both CAARA and other statutes protecting whistleblowers bar employers from “prevent[ing] or dissuad[ing] employees,” whether for antitrust or other reasons, “or to punish them for whistleblowing,” according to the CFPB.

In a similar vein, the Federal Trade Commission (FTC) in 2023 put forth guidance that NDAs or confidentiality agreements that in any way dissuade employees from sharing information with FTC staff “are contrary to public policy and therefore void and unenforceable.”

Bottom line, employers must be careful to write their NDAs in a way that makes it clear that they will not retaliate against employees who report information or otherwise cooperate in investigations by the CFPB or other regulatory agencies. It’s particularly important if an internal investigation is already underway that the language of any such NDA expressly permit such communication with the government.

Broadly speaking, then, small businesses need to anticipate any potential misconceptions of employees in drafting their NDAs, as well as a healthy skepticism on the part of regulators as to their potential intent in doing so. In other words, err on the side of clarity.