There may be state-related licensure requirements. Smaller companies, especially, may not be set up to have the legal provisions in place to handle employees living in all states.

There may be other things but I'm not an employment lawyer. So people can move but they may not continue to be employed across state lines.

Yes, in many cases, people can commute across state lines to do their actual work. But the companies often still need a legal entity in that person's state to pay them. I'll leave aside edge cases related to custodial matters and so forth.