You can legally keep employees on longer than they requested so long as you provide them pay and benefits during that period. Since the provides for damages only in the form of lost wages, someone you placed on paid leave won’t suffer any damages.
As a court ruled recently, the FMLA allows employers to substitute vacation time for unpaid FMLA leave, so there’s no reason you can’t substitute paid leave pending termination.
Recent case: Alice Henry, a Fulton County elementary school teacher, asked to be transferred to another school. The district denied her request. She didn’t show up for work and instead turned in a note explaining that she’d been ill and needed three weeks’ leave.
The school district scheduled a hearing on whether to fire her for insubordination. Meanwhile, it put her on 12 weeks’ paid leave and made her dismissal effective at the end of her leave. Henry sued, alleging the district violated the FMLA by giving her more leave than she requested.
The court dismissed her claim, saying that because the county had paid her during the time off, she hadn’t suffered any damage. (Henry v. Fulton County Board of Education, No. 1:05-CV-2008, ND GA, 2006)