Observing employees and collecting information about them may be carried out directly, perhaps by examining their work output, or indirectly, e.g. by electronic means.  However, monitoring is an intrusion on people's privacy and should only be used where justified and only to the extent necessary.  Where monitoring is found to be unjustified or unnecessary then employers may fall foul of the Human Rights Act 1998 or the Data Protection Act, 1998.