Would that even prohibit the employee from contributing code to open source projects? :\
I'd guess if you are employed somewhere with these draconian rules concerning unrelated side projects (i.e. pre-approval) then you might not be the type of person they want. I know that feels a bit like employee/victim-blaming, but it also shows how important that employee values his personal software freedoms.
It's also a great way to punish the naive who have since wised up and want out.
There sure do seem to be an awful lot of stupid biases like this floating around for an industry that claims it can't find talent.