"Don't be evil" is a statement about your overall behavior. "Do no evil" is a statement about each individual act you commit. They can often be in conflict when your actions have consequences on other actions (i.e. always).
In this specific example - yes, I think that claiming ownership over everything your employee does is slightly evil (common practice, though). However, without that legal protection, why would you ever share the rest of your IP with the employee? Why would you ever let them work on anything other than their immediately-assigned job duties? You end up with a culture that's fairly similar to most big companies, where employees are told only what they need to do their jobs, and managers tightly control everything that an employee works on. I'd say that's a far worse outcome than a culture where employees know everything that's going on in the company and have wide latitude to start projects that make things better for users. It's worse for employees, it's worse for users, and ultimately it's worse for the company.
In this specific example - yes, I think that claiming ownership over everything your employee does is slightly evil (common practice, though). However, without that legal protection, why would you ever share the rest of your IP with the employee? Why would you ever let them work on anything other than their immediately-assigned job duties? You end up with a culture that's fairly similar to most big companies, where employees are told only what they need to do their jobs, and managers tightly control everything that an employee works on. I'd say that's a far worse outcome than a culture where employees know everything that's going on in the company and have wide latitude to start projects that make things better for users. It's worse for employees, it's worse for users, and ultimately it's worse for the company.