> since it's literally coercing somebody to accept Microsoft's abusive privacy and service policies that explicitly state that unless agreed, their products can't be used.

Sure, but the privacy and service policies are only applicable to your employer's data, it was never your data in the first place.

> I have never understood how that behavior is considered legal

You can't give employees veto power over software choices, an employer that can't choose which software platforms its employees use is not going to be viable.