To fix this:
Under the message: To unlock and restore your local data, please enter your old chromebook password, is a link that says forgot password.
Click on this link and you will see the option Log in anyway. Click on log in anyway. All WPAS Google accounts are forced to store all data in Google Drive, there is no data kept locally on the device, and it is therefore safe to do this without losing any data.
Please do not follow this advice for a Chromebook that is not managed by WPAS.