It happens in Europe too. The rationale is that the employer gives you a lot of knowledge and tools which you could use to your own benefit... there are clear cases of abuse, some leading to litigation. I guess the employers want to defend themselves against IP theft basically.

What I normally do is ask for an agreement that projects unrelated to my employer's business is ok for me to work on, which I have always been able to get (sometimes they ask for authorization on a case-by-case basis, but usually it's just common sense).