I found that unpairing/pairing the watch is done via the Apple Watch app on the phone, not in the Bluetooth section of the Settings app.
So, I did the unpair of my Apple Watch and then re-paired it, but nothing has changed. I even did the recent update to the phone and watch.
When I wish to unlock the phone with the watch while wearing a face mask, the watch will still respond most times with the message that the iPhone has been unlocked, but the iPhone remains locked until I enter my passcode.
Indoors, when connected to WiFi, the phone seems to respond more often to the watch, maybe 1 time out of 3, instead of 1 time out of 4 or 5. However, since I’m rarely wearing a face mask in my home, this is hardly helpful.
Frustrating!