A private investigator is operating undercover in a retail establishment to investigate employee theft. The investigator observes an employee taking merchandise without paying. What is the investigator's primary ethical and legal responsibility at this point?

1. Immediately confront and detain the employee.
2. Notify local police immediately and disclose their undercover role.
3. Attempt to 'sting' the employee into committing more thefts.
4. Document the observation thoroughly and report it to the client, avoiding direct confrontation or arrest.