When asked about their company's policies for monitoring employees, more than one third of Inc.com business owners say that they do not screen employee computer use in any way.

The Inc.com poll, which surveyed readers between September 22 through October 6 and received 305 respondents, found that 25 percent of companies blocked "unproductive" sites like YouTube, Twitter, and Facebook, while 19 percent monitored company email, but only when they suspected a problem; 16 percent tracked all employee computer usage.

In comparison, a 2007 survey by the American Management Association, which included businesses of all sizes, found that 66 percent of employers monitored Internet connections and 43 percent monitored email. 

"I would tend to think if you have a company of 20 people or less, you already know what's going on" with your employees, says Elizabeth Charnock, CEO of Cataphora, a Redwood City, California-based company that provides business software to collect data on employees.

However, in recent months, Charnock says she has been surprised at receiving more sales leads from small businesses, which she attributes to the economy. Employers are concerned that their staff is "under much more financial pressure than they understand; maybe a spouse has lost a job for example or had a reduction in pay."  This has the potential to produce what Charnock calls "cornered rat syndrome," in which normally trustworthy employees do things they would not do otherwise because of their desperate financial straits.

The reasons for employee monitoring run the gamut from concerns about productivity and loss of trade secrets to sexual harassment and discrimination issues. Companies like Cataphora can collect data on email, IM, call logs, building key cards, and financial transactions to create a comprehensive picture of employee activity.

Lewis Maltby, president of the National Workrights Institute, a non-profit that advocates for worker rights, says high-tech surveillance is more effective for some problems than for others and he encourages employers not to channel Big Brother too much. 

For example, e-mail and computer monitoring won't catch a lot of sexual harassment cases, which are mostly verbal, but they are better tools for policing trade secrets. "The universe of people with whom you share your core trade secrets should be relatively small," Maltby says. Regarding the effectiveness of monitoring employee email to detect harassment, he says, companies "spend a substantial amount of time and money, most of which is wasted. It's not going to break the company but it's not a trivial cost."

Cataphora's services cost hundreds of thousands of dollars in licensing fees, without even including maintenance and upgrades to the software, but it can save a large company millions in a lawsuit. Cataphora's most common clients are in the fields where lawsuits are a way of life: finance, pharmaceutical companies, and companies that manufacture dangerous objects.