Workers need greater protection from covert surveillance and employer monitoring, according to a Victorian Law Reform Commission report released Wednesday.
The options paper said hidden cameras, satellite tracking and other technologies were threatening workers' rights.
It recommended new privacy legislation to protect workers, while allowing employers to look after their interests.
Under one model put forward, employers would have to seek permission from a new privacy regulator before filming workers or reading their e-mails.
A second option would require employers to comply with a set of general principles when conducting surveillance, monitoring or testing of employees.
In its paper, the commission said recent studies suggested Australians were among the biggest users of video surveillance technology in the world.
Another study found 76 per cent of employers admitted to monitoring their workers' e-mail traffic, while 5 per cent said they did so regularly.
Telephone monitoring was commonly used by employers, while GPS tracking technology was implanted in everything from vehicles to mobile phones.
Medical and psychological testing of employees was also growing, and presented serious issues in terms of privacy, ethics and accuracy, the paper said.
Law reform commissioner Marcia Neave described the extent of surveillance in the workplace as shocking, adding that it was technology driven.
"There needs to be greater clarity in the law and there needs to be a proper balance struck between the needs of employers and the needs of employees," she said.
Victorian Trades Hall Council secretary Leigh Hubbard said Victoria had lagged behind other states on the issue of workplace privacy, and legislation was desperately needed.
"Workers have the right to know that when they go to work they are not being spied on by secret cameras, their e-mails aren't being read by their employer and their health is a matter only for them," he said.
But the Victorian Employers' Chamber of Commerce and Industry (VECCI) said businesses needed to be able to use available technology to guard against theft and ensure company property was not misused.
The options paper seeks public consultation until November 30 before making recommendations to the government.