Sorry, not an answer, but I don't have enough creds to comment...
Thanks for posting. I'm having the same issue with one of my workspaces that contains both git source-controlled directories and non-git directories, yet I can open other workspaces that also contain both git source-controlled directories and non-git directories and NOT see the same issue.

The only difference I see in the structure of the workspace files is that the one with the problem has entries like

"folders": [
        {
            "name": "PS_Library",
            "path": "PS_Library"
        },

Whereas the workspaces without the issue have entries like

    "folders": [
        {
            "path": "."
        },

i.e. just "path" without "name".

Sorry can't be more help, but keen to find a solution.