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A leader exits the assault hex. A friendly, demoralized, reduced unit stays in the assault hex and tries to recover morale.

It fails to recover and is eliminated. Does this count as free fire for the enemy units remaining in the assault hex?

Thanks
Please correct me if I am wrong about the initial situation because I am not sure I got it correct.

A good order (or disrupted) leader is in a hex with a demoralized unit. The leader and the unit activates, both to move. The leader exit the assault hex and then the unit attempts to recover and fails. The unit must exit the assault hex (12.13). As there are no (friendly) combat units left in the hex, all existing units (including the leader) must undergo the "free short" (12.12).

Note this could have been better written if the rules had specified "units and leaders" instead of just leader but I think the intent is clear because the specific rule makes mention of units and combat units.

The way to avoid losing the leader is to activate just the leader and have him exit the hex. The demoralized unit remains in the hex but it does not activate this action segment. The unit is activated in a later action segment and should it fails to recover, it must exit the assault hex and will undergo a "free shot". But the leader is safe in this case because he did not leave the assault hex in the action segment. 
I think you have it right.

If the demoralized unit fails it’s morale check by 3, it is eliminated?
Mostly right. The leader would only avoid the free shot if it he exits the hex in an action segment which was prior to the DM unit attempting to rally (and failing).

The DM unit would lose a step if failing a morale check, which was inflicted due to a combat result, by 3 or more. It would not lose a step by failing a rally attempt by 3 or more.
Ok, thanks. I guess I misunderstood the rally. I’ll have to reread the rules.