Without knowing anything about that particular case, I would assume that the person was initially hired as an F-1 student and later changed to OPT status. University IT tends to hire students to entry-level positions all around the world. And now Stanford wants to keep the proven employee instead of going through the uncertainty of hiring a new person.

So maybe the actual question is what kind of a Stanford undergraduate would choose a university IT position in ~2021 instead of aiming for more lucrative tech roles. Perhaps the kind that wants to maximize their chances of getting H-1B.

"we" don't allow, but also don't enforce (violators are rarely punished).

I feel like this is legal i.e. we allow it.

Stanford wouldn't blatantly violate laws like this.

it could be not blatant violation, but they more like don't track this on their side because don't think it is a big deal, so some individual can act like that.

Blatant violation would be if they do it on many cases and large scale.