>If I hire a freelancer to work on project A and charges me X$/h, but instead work on project B and still charge me for that time, it's illegal.

Employers with exempt full-time employees can mandate you stay for 40 hours/week regardless if you've finished your work for the week in the first 4 hours or not.

With physical labor, it's relatively easy to find the line where it's impossible to go faster.

With software, you can take a 3 month project and solve it in 10 minutes if it happens to be close enough to something available off-the-shelf. I get nothing extra if I deliver before the deadline by knowing about that solution (especially within 10 minutes), and that's the problem. Worst case, you have to write it all yourself and then you're still on-par with physical labor jobs, so you aren't entitled to anything extra for delivering before the deadline.

We don't know the employer's IP clause. I've certainly worked for companies which claim ownership of only IP directly discovered in the course of doing the company's work, related to the company's work, or using the company's equipment.

With that being said, OP is probably doing the work from his employer's office, which is definitely a breach of any employment contract I've ever signed.

I think it would still be a civil matter, just as patent infringement is.

It would more likely be a breach contract.

However, that still isn't illegal. That would be a civil dispute. "Illegal" is implying that he could go to jail and that he is breaking a law. Just nitpicking, but I think that "illegal" is a much stronger idea than simply "could get you fired or could get you sued."