The mistake was to use them for blackmailing intead of simply blocking the domains
Here employees remote monitoring is explicitly forbidden, thereby that behaviour would be illegal from the beginning. If you find accesses to illegal material and sites that could put the whole company in trouble, you have to follow the proper procedures to identify the culprits and sack them (of course, unless they are executives high enough who just leave 'to follow new opportunities'...)
Of course you can backlist the domains, instead of blackmailing people, no matter how disgusting they could be.