I would double check that you have the settings correct for this feature to work properly.
To unlock your Apple Watch with your iPhone: Open the Apple Watch app on your iPhone, tap Passcode, then turn on Unlock with iPhone.
Your iPhone must be within normal Bluetooth range (about 33 feet or 10 meters) of your Apple Watch to unlock it. If Bluetooth is off on Apple Watch, enter the passcode on Apple Watch to unlock it.
Once you set this up the next time you put your watch on, press the Digital Crown to light up the screen. Then instead of entering your PIN, pick up your iPhone and unlock it by entering your passcode or using Touch ID.
For more information visit:
Set up your Apple Watch - Apple Support
If you forgot your Apple Watch passcode - Apple Support