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It is legal because if you were not on payroll you were not accruing leave.
Now, there is no statute justifying this, but you are looking at the law backwards. Vacation and PTO is not legally required for an employer to give, so when they do give it, they can set what rules they wish about its use. An employer has free reign unless there is a law actually stopping them from doing something.
The employer can't just take vacation that a person has earned and is in their leave bank. That covered by a statute. However, there is no statute or law saying that you continue to accrue benefits when using WC, just the same as if you were still working. That's not true, but I can not show you the absence of a law. That's just the reality of the situation here though.
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