Grim Fandango/WMG

Manny Calavera is really that skeleton in Blondebeard's chicken restaurant in The Curse of Monkey Island

It is apparently not just a Shout-Out that they share the same face. Manny was one of the undead pirates working for LeChuck and he got Killed Off for Real when Blondebeard stabbed him for criticizing his dishes. It is implied that souls who have to become Grim Reapers have had themselves some pretty sinful lives, and Manny must have been quite an evil pirate.

Manny never did anything bad enough to get "community service" as a Reaper

He says he doesn't know what he did to become a Reaper, and he doesn't seem at all evil. The DoD corruption extends to the recruitment of Reapers too; note all Reapers get a Number Nine ticket (the reward for the most virtuous souls) when they leave? They were owed it anyway, the company just withheld it in order to get Reapers to work for them.