Yes, this is absolutely far worse than just letting the paper be published. AI ethics papers are not exactly the kind of material that gets a lot of conversation at the best of times, outside that world, but Google firing a black woman for speaking up is the kind of thing that definitely does get talked about (as we can see here).
But that aside, Google should want this kind of paper published. They absolutely should want to know and discuss every possible weakness in the ethics of their approach to AI - Google has a scale of influence so large that how they act in areas like AI, trickles down to many other organisations. To me, that gives them a responsibility to make it as ethical as is reasonably possible, and that will only happen if experts are allowed to speak freely.
One can make short-term arguments about how that hurts them, but the long-term damage of getting massive AI systems wrong, will be far, far worse.