"Employers have legitimate concerns regarding performance and liability. Likewise, employees have legitimate concerns regarding privacy," Bayer said.

The growth of electronic monitoring has been explosive during the past two years, according to the survey.

Blocking access to sites

Fifty-four percent of employers report monitoring their employees' Internet connections. Thirty-eight percent review e-mail messages, up from 15 percent in 1997, and 31 percent review computer files, up from 14 percent in 1997.

In an effort to control employee misuse or personal use of telecommunications equipment, 55 percent of respondent firms use "blocking" software to prevent telephone connections to unauthorized or inappropriate phone numbers. Twenty-nine percent block Internet connections to unauthorized or inappropriate Web sites.

The companies said in the survey that they monitored Internet activity because they want to avoid sexual harassment and other kinds of lawsuits that could stem from offensive material on display.

But they can also be looking to protect trade secrets, boost productivity and keep workers from scouting for new jobs.

"Productivity suffers when employees surf the Web on company time. Additionally, employers can face liability issues when employees access pornographic or inappropriate Web sites that may offend their colleagues," Bayer said.

Employees penalized

The larger the company, the more likely it is to engage in monitoring and surveillance activities, the survey says.

Respondents from the financial services sector, including banks, brokerages, insurance firms and real estate companies, lead the pack when it comes to monitoring their employees' e-mail, with 55 percent engaged in the practice. Almost three-quarters, or 73 percent, of financial service businesses monitor workers' Internet connections.

Some companies are beginning to take action against employees they find Web surfing pornographic sites or sending off-color e-mail.

Examples include the Compaq Computer Corp., which fired 20 employees who had logged more than 10,000 hits apiece on pornographic Web sites. The New York Times Co. recently fired 22 people in Norfolk, Va., and one in New York for sending offensive e-mail.

Law allows monitoring

The Federal Electronic Communications Privacy Act of 1986 forbids most interception of electronic communications, including e-mail. But companies can monitor e-mail to protect their rights or property, or for a legitimate business purpose.

Privacy expert Lauren Weinstein, who moderates a Web site called the Privacy Forum, said employers need to tell workers that they are being monitored.

"Basically, the bottom line is that to the extent monitoring is being done, it is crucial that employees be fully, completely and unambiguously informed about what activities will be monitored or controlled in any manner. This should preferably be explained in writing and signed as understood by the employee to avoid any misunderstandings," Weinstein said.