The contract may not have teeth, the employer doesn’t own 24 hours of an employee’s time and has no legal basis to dictate what an employee does outside of the workplace.

However, in the US “at-will” employment is the norm, which means either party can terminate the employment at any time for any reason, or no reason. If the employer finds out an employee is moonlighting or freelancing in their spare time they can simply fire the person, and cite violation of policy or give almost any reason that isn’t illegal. The contract would only matter if the case got into court, and that’s unlikely to happen since the employee has no right to a job in the first place.