There may not be an ethical issue involved in employee monitoring. The workplace is considered to be some sort of a public place, not a private sanctuary. When the barrier of privacy is broken down between employer and employee, the ultimate goal can only be the benefit of employee productivity. Ask any employer about this issue and he is bound to say that it is for the benefit of ‘performance optimization.’
To justify what may be perceived as breach of privacy, the employer on his side of the fence can think that he should avert trade secrets leaving the company or protect the employees and the business from harassment, defamation or illegal activity lawsuits. In some cases, justification can go as far as helping with Homeland Security initiatives. At the very least, the employer might just be thinking of acquiring information on network bandwidth consumption and storage space usage, thereby helping with network capacity planning.
In reality, employee monitoring is very much a security issue. This is, after all, the Age of Intellectual Property Losses. The loss of employee privacy is tantamount to management’s security measure to determine what kind of information enters and leaves the company environment.
Employee monitoring is an HR issue altogether. It is almost entirely under the realm of management information systems or IT/security. It is more often than not prone to abuse so employees should be educated on the company’s exact policies regarding the monitoring efforts of the office on them. Objectivity is key. It is a sensitive issue if the employer becomes Big Brother.

Of course it is important for employers to monitor employees in the workplace and it is increasingly easier for people to go places on the internet that could get them in trouble. Employees should know that when they are at work everything they do is public (well at least) employer knowledge and shouldn’t check their personal email or do online shopping. Checking email and shopping may not put the company’s trade secrets at risk but it enables your employer to view your information. You are essentially giving up your privacy. -Annalise ezanga.com
I totally agree with Annalise: as long as employees are using company resources, the employer is entitled to monitor and control everything that happens on them. Privacy is for personal life, not work time, whether we like it or not.