I would first get some
evidence that the other party wants the money
OR they will tell on them......and
then own up (probably worth a trip to Citizens Advice Bureau first)........at least if she does then get the sack the other party may well get sacked also

.......and she could consider getting the Police involved as blackmail is still treated seriously and armed with some evidence would be hard for them to ignore / would be a relatively easy conviction (Plod like that!).
Their is no requirement to volunteer convictions, but if she did lie on the application she could always claim she thought the conviction was spent and therefore no requirement to disclose. 7 years I think for "Normal" crimes - i.e. I don't think chopping someone up with an axe ever gets "spent"
Their is no automatic LEGAL requirement to sack someone for anything, albeit in some companies (internal) "rules is rules" and can be implemented without any thought (I think they call it modern management

), but FWIW, IMO if she has been a good employee for a couple of years then any employer would be plain stupid to get rid of her for purely business (???'s) reasons..........but of course plenty of dumbf#cker employers around
Hope things work out for her......