Spurious overlapping instance with FlexibleInstances

Summary

GHC tells me of an overlapping instance when there is none.

Steps to reproduce

{-# LANGUAGE FlexibleInstances #-}

module Test where

class Thing p where
  thing :: p -> String

class Thing1 p where
  thing1 :: Thing a => p a -> String

instance (Thing1 f, Thing x) => Thing (f x) where
  thing = thing1

data Token = Token

instance Thing x => Thing (Either x Token)

testF :: (Thing x) => Either x Token -> String -- overlap error!
testF = thing

testF' :: (Thing x) => x -> String -- no overlap here!
testF' = thing

Expected behavior

No error. This error made me question my understanding of overlapping instances, but it seems to me that either testF should compile fine, or both testF and testF' should fail.

Environment

• GHC version used: 9.2.4

Optional:

• Operating System:
• System Architecture: