I think it's totally within bounds to require a certain standard of behavior of your employees on their free time. As a business owner you spend years building up a good reputation and trust within your community. Why should it be okay for your employees to go out and ruin it? No, erotica writing isn't evil, but it is something that one may not want one's lawyer doing.
I used to work at a summer camp. The counselors were allowed to do whatever they wanted in their free time. They were also allowed to wear their camp t-shirts in their free time. But they WEREN'T allowed to do stuff like act rowdy, drink alcohol in public, or engage in general bufoonery in their free time while wearing their camp t-shirts. Why? You can be the best camp counselor in the universe, but if a camp parent ran into you staggering drunk at a bar in the city, then what would they think of your ability to care for their most precious small children? Drinking isn't bad per say, but it can be seen as a negative trait in one who has to bear a heavy responsibility.
I'm a volunteer for an adaptive ski school. We aren't allowed to drink in public when we are wearing our gear with the name of the ski school on it, even if it's our 'day off'. The ski school's employees aren't allowed to either. Why? Because when we wear their name we represent them, and we have to put them in a good light. The fact that this woman is easily googleable at her erotica home page and on her company's website is the same sort of issue.