Companies are coming under fire from privacy campaigners for rolling out a computer program which enables them to track the communications and contacts of their staff.

Technology is beginning to allow big City firms to monitor the e-mail correspondence of their workers to establish whom they know and how well they know them.

The alleged benefit is that the company can tap the collective knowledge of their organisation - in particularly the connections its employees have with other firms - to drum up new business and assist with tasks like recruitment.

But privacy activists say the programs amount to illegitimate 'snooping', and lawyers have questioned whether they are legal, saying that even if staff do agree to a monitoring policy as part of their contract, the amount of 'silent observation' might be unreasonable.

The software can be put to a range of uses, from a simple trawling of the entire company's Microsoft Outlook database to see if any employee knows someone at 'company X', through to a more intrusive approach, including monitoring the content of e-mails on a regular basis.

One of the more sophisticated programs, provided by a software company called Contact Networks, analyses the frequency of an employee's communications with their contacts, to distinguish, for instance, between someone contacted briefly in relation to one deal, say, and someone with whom a more long-standing relationship exists.

It has mostly been embraced by large organisations such as law firms, banks and consulting firms whose staff collectively have tens of thousands of contacts their bosses are keen to exploit.

Geoffrey Hyatt, chief executive of Contact Networks, which is based in Boston, said that the software gave companies "a good source of inferring where an employee has a relationship" by reading his or her e-mail patterns and calendar. It did not read the contents of individual e-mails. "It's more a way of finding out who knows whom, rather than who knows what," he said.

Mr Hyatt said that companies which had deployed it gave their employees the opportunity to 'opt out' of the program, but that sign-up rates were higher than 99 per cent because very few workers had "secret relationships" which they were unwilling to disclose to their bosses.

Gordon Jackson, chief operating officer at Taylor Wessing, a London law firm which uses the software, said that nobody had objected and that the firm had added 80,000 contacts to its database as a result.

Another company, Tacit, provides software which does more pervasive monitoring, allowing companies, for instance, to monitor which blogs, 'wikis', and other web 2.0 technologies their staff are using. Tacit did not reply to a request for comment.

Gareth Crossman, director of policy at Liberty, said: "We would definitely be concerned about any company that had a blanket monitoring policy. All employees should be entitled to have privacy for some communications, and any system which does not cater to that is excessively invasive."

Employment law experts said that in principle companies were allowed to monitor the communications of their staff, so long as they obtained consent, but that the level of intrusiveness had to be justified by the needs of the employer.

"In this case the need - to bring in new clients and make more money - doesn't seem to be that great, especially given that there are probably other ways of obtaining the information, for instance by simply asking the employee to share their contacts," David Williams, an employment law partner at Kemp Little LLP, said.

Companies also risked breaching the rights of the third party whose details were passed to an employee in one context, only to have them used in another.

"There's definitively a very big 'ick factor' with these things," Jeffrey Mann, vice president of research at Gartner, said. "The idea that my employer is going through my mail really is a bit of an issue." He added that fears about privacy were the reason why several larger software firms had eschewed selling such products.

"There's also the problem that it may get things wrong. The program might conclude I'm an expert on Thailand, for instance, when I'm actually just going there on holiday."

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