It's not about what they could use. It's about what they own and where it's going. If your employment agreement states that any code you write belongs to your employer and that you're not allowed to share company code with others, then a work-sample test essentially asks candidates to violate their current employment agreement.
Employment agreements like that are certainly frustrating. I've had experience with a few.
One thing to realize is that your employer can't really retaliate. The hypothetical iOS app I mentioned is set up for one purpose: to let candidates show they can do work the company is looking for. Not only will the code be thrown away, but it wouldn't make any sense to use it.
