Yes of course AC removes employee-pass people if more customers show up. We just try and do it discreetly, and not in wide announcements like on the UA example. I know of many times employee travellers being taken off a plane, not because of space, but because of too much cargo. Employees don't go if: no seats, not meeting dress code, cargo-load is too heavy, if not enough fuel to support them.
That's just the downside of travelling on an industry standby pass.