Not a tax break for the employee, since the net effect is still less money. Unless you consider losing your job and having no salary to tax also a tax break.

It’s not “still less money” compared with the situation where the employee gets the money AND donates the money. Of course if the employee was not going to keep the money not getting it is a net loss.

People were mainly just annoyed that rather than getting a free phone or some cash as a gift, they instead got the ability to choose a charity to receive a donation from Google (which has "value" but not monetary or physical value to the employee). The expected to receive a phone/cash so it felt like less compensation/bonus when they didn't receive it.

I doubt anyone was thinking about donation related tax breaks or anything like that. It was simply "sure I will have Google give $500 to this food bank, but why don't I get a new phone or cash bonus?"

Yeah, it depends on what situation you're comparing against.

If you're comparing against the employee getting a gift and keeping it, then yes, the employee was better off before.

But you're comparing against an employee who was previously donating the gift and getting a tax deduction on that donation, the employee is better off now.