Many places have terrible and unhealthy, but legally binding contracts regarding work done in your own time while employed. :(
Without more information we can't know, but its far from given that their position is legally ambiguous.
The same could be applied in reverse: if he wrote a considerable part of the code before entering employment and did use it at his place of employment, what does it say about the employer's right to use it? Or is it "since you're working here now, we can use all you ever wrote exclusively even if you didn't license it to us"?
If after Nick leaves they would be on shaky ground if they used it on other projects that Nick hadn't worked on.
IANL but that's my understanding of the law in the UK.
Believe me I had to learn it the hard way.
If you choose to work for that type of organisation, it is therefore similarly widespread practice for anyone who's any good to demand that the clause be replaced with something more equitable, probably using magic words like "in the course of your employment" or something similar.
I don't know what default rules apply under all possible circumstances in the absence of any explicit agreement, but if you work in an IP-related field and don't have an explicit agreement about IP rights in your contract, you're crazy. :-)
I'd love to know what you mean by that! :-)
If they're smart enough to let the managers who need to get real work done override the paranoia of the corporate legal and HR departments, they can still hire good people by allowing flexibility in the contract when these over-reaching terms are almost inevitably challenged.
Some places just won't deviate from their standard contract and if you want a job with them then you just have to suck it up. Strangely, I don't know many good creative people who work for those places.