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Frequently, if they can manage it, as France begins to fall, the British will put an HQ and at least one other unit in the hex SE of Bordeaux, behind the Garonne, along with some French units in Toulouse and possibly others behind the Garonne. There may be other French units still in the Alps, defending Toulon, or just randomly wherever they got stuck.

What does the Axis do about this? Assume Paris has been captured. Do you declare Vichy? This will get rid of the French, but now the British are in a forest that can only be attacked from one hex that is behind a river. That is an awfully hard nut to crack. So, do you not declare Vichy, and try and dig them out? That might take a while, particularly if it is late in the year. Also, this keeps the French fleet in play longer, which the Italians will not appreciate. In addition, it ties up a lot of German units that want to be doing other things, like invading Yugoslavia, or moving towards the Russian border preparing for Barbarossa. Finally, there will usually be a bunch of French reinforcements coming from the units that the Germans shattered as they drove on Paris.

I haven't figured out a good option for the Axis here. What do other players do when they are the Axis and confront this situation?

It will cost redeployment time unless you are planning for Spain to next be on the menu.

Use your air to put them out of supply, ground strike them and clean them out of there.

BTW, this is why CE had a rule change allowing the Germans to enter Vichy while next to those units.

Pretty much what Paul said.