The way FEFLOW handles dry cells depents on the model type: In unsaturated mode, the capillary relationships are taken into account to model the capillary updraft in this area. In saturated/unconfined/free+movable mode, the top slice is shifted after each time-step to match the water table. In saturated/unconfined/phreatic mode, the conductivity of a dry cell is set to a very small value (a semi-saturated cells conductivity is scaled linearly with the saturation).
Which model to choose depends on the actual model details; however from your description I would guess that the saturated/phreatic mode would be appropriate. It is important to set the right settings here (3D model): in the free+surfaces editor, open "constraints" and set the "touching the top surface" to unconstrained". In the "specific options" dialog, choose "confined". In this way, FEFLOW will handle the top surface as an impermeable boundary (this is for the confined part of the model). In the unconfined part, just a sufficiently high elevation for the top slice that avoids that the water table "touches" the top boundary.
A 2D model works similar, here set the "constraints" to unconstrained and apply a sufficiently high "Aquifer top elevation" in flow material properties for the unconfined part of the model.