I always got the idea that Phase II armor was worn only by ARC Troopers during the earlier half of the war and later spread to all the ranks in the clone army as the war progressed. For example, in the Citadel arc Fives and Echo, after they become ARC, are the only ones who have Phase II armor while all the non-ARC ones wear Phase I. So having the Domino Squad at the beginning of the series wouldn’t create any continuity issues.
I think that’s the right interpretation, it feels like what they were implying by showing it in the Rookies arc.