We have a 5,000 annual health FSA limit. Employee's spouse also has an health FSA with 5K limit. It is my understanding that unlike the depednent care fSA which limits to 5K between both of them , that the healthcare FSA is a plan limit adn employee can do 5K in our plan and his posue can do 5K in her employer's plan, correct?

Correct, there is no statutory limit for health FSA. The limits are plan specific.

However, legally, they couldn't run the same 5k of expenses through both plans. That would be fraudulent. They should have 10k of expenses and run 5k through each of them.

Agreed, our FSA reimbursement claim forms have a certfication that the claims submitted are not reimbursed elsewhere.