Normally the only AC employees who should be able to jump ahead of you are Captains and even then it needs to be related to a flight they have or will be operating.
Two other things could have happened:
- The "AC Employees and their families" were senior management and they pulled their unofficial management trump card
- They were "friends" of somebody with access to the upgrade list and were inappropriately moved to the head of the upgrade queue
By all means provide details to AC and ask them why this happened. It would be interesting to see if/how they respond.