How does this normally work for enterprise users? Does Chrome show an error or refuse to sign in when this happens?

I briefly checked it manually some time ago and I got sign-in error (I think it was small gray message in the upper left corner of the screen). Also the public session account visible on login page 'lost' the human friendly name and was represented by the local device account's hash.

Overall you can say something is wrong, but not clear what exactly. We would need to change/add messaging in this scenario.