I'd love to hear cdibona's views on that.
On the one hand, it's not unreasonable that a company paying an employee to work for them should expect a certain degree of loyalty as long as they are taking a company pay cheque. That would reasonably include the employee not directly competing with their employer.
On the other hand, some employers are vast companies, and no one employee can possibly know everything that is going on. Is it really fair to penalise someone who creates a side project completely independently of work, just because it happens to relate to a company project of which the employee had no knowledge? If you allow that, without imposing a corresponding duty on the company to disclose everything they do to every restricted employee so that employees can understand the mutual obligations before making decisions that might be affected by them, doesn't that conflict with the most basic principles of contract law?
I'm not ready to give up my employment over this (though it does significantly lower the bar for what another organization would need to offer me in order for me to consider switching jobs :-().