Can a company's IT department know what Web sites an employee visits, even if the employee has no data in their...
history folder on their C drive? I heard there is free software available to block them from monitoring who I am sending emails to from my business email address.
There are certain privacy requirements that employers are bound to. However, as an employee you probably signed an acceptable use policy (AUP). Also, you are using the company's equipment, network, and Internet service. The company has most likely placed limits on what each employee can do with the Internet and email system or at least defined in the policy what is or is not involved. There's a lot at stake for them as one inappropriate email or sexually explicit website could mean huge fines and legal headaches.
Sure there are tools that allow the user to redirect traffic and other technologies like proxies that allow users to obfuscate their IP address but you're still talking about the company's assets. If they were to catch you trying to pull such tricks it could get you fired. Personally, I don't think it's worth it. No matter what you do they can still monitor all traffic that goes into or out of their network and you are not in a position to detect it. Your best bet is to use the company's network for business activities and conduct personal business on your home Internet connection.
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