Sounds like the employer paid out PFL and the state paid the person for the same time period resulting in a payback of the employer funds.   

If it all happened in the same year, seems the W2 should have been adjusted.   If it was in 2 different years (paid in one year, paid back in the next) perhaps Claim of Right 1341 comes into play?  Pub 525, Page 37 has the details for his