I don't think it really applies to the side-project rights case, but there's reasons to control overtime and require permission for it: Trying to ensure lower management/peer/customer pressure don't cause people to overwork themselves, if people work more on additional projects they're not asked to do they might be less effective at the main work, in some places (probably not the US) it's a legal risk. My employer in Germany has such rules, although I'm not sure how strictly they're enforced.
Sadly, for programmers in the US, overtime is essentially always unpaid. When you e.g. hear about game developers doing 80hr/week crunch time, they're not getting paid extra for that.
I get that, but 'unsanctioned overtime' sounds as if the company was robbed of something. Since they never paid for that 'overtime', how did it need to be sanctioned?
Going that route, maybe the company could pay for the work done on the project.
