Org Level two in HRMS is defined as "Department." There are codes in HRMS set as "Inactive." In ESS, the Phone List is set to filter by Department. When an employee utilizes that drop-down in the Premium version of ESS, they see all Department codes. Not just the Active ones. The system should be hiding Inactive codes, but it's not.
This is controlled by a setting in Enterprise Setup. On the Enterprise Setup page, Enterprise Options tab, set "Show Inactive Codes" to No and you will not see inactive codes as you described.