Apple Watch Ultra Issue: Still Active and Notifying When off Wrist and Locked

It's been a month since I've owned by Watch Ultra and have encountered a very odd issue that was never a problem on my previous Apple Watches (since gen 1). When taking the watch off of my wrist, it immediately locks as it should, however when off of my wrist the watch still receives audible notifications for phone, text, etc. It's still completely live off of my wrist.

I have the Phone and Messages options in Apple Watch set to Mirror my Phone (along with all other available apps), but the issue is still there. This leads to spam phone calls in the middle of the night, texts, etc. Silencing my phone at night only silences my phone and not the watch. It will still ring with incoming calls unless I specifically turn on the silent option on the watch itself. If I don't remember to do this on the watch, it goes off in the middle of the night and has become a rather large annoyance. My previous watches would be completely disabled off of my wrist and when on charge over night.

In speaking with Apple, they first claimed that they had never heard of the issue. I spoke with a "senior" advisor who tried to troubleshoot. We pulled logs from the device, factory reset it and re-added a couple of times, etc. to no avail. My issue was then reported to Engineering, who mentioned that they're aware of the issue, but that they do not have an update on a fix. I would call this a critical issue on a $1,100 CAD watch that I just purchased that was never an issue on my previous generation watches. I'm actually really surprised that I can't find more users talking about this online.

Apple phone support also told me that I had to go an Apple store. The rep was not very helpful and sounded like she just wanted to get me off of the phone. I really did not want to go back to the store as it's a 30 min drive and a large, very busy store. They told me that was the only option. Frustrated, I agreed to go back to the store to "service" my brand new watch.

I went to the store to have the rep advise that this information was absolutely INCORRECT and that this should have been handled over the phone and exchanged if needed as I reported it 7-days after purchasing. I asked the phone rep if they could just ship me a new one three times to avoid having to drive back in to the store and spend more time and an afternoon on this. The answer was "no, this is an in store issue."

In store and as a last cause, the Apple rep offered to exchange my watch for a new one due to the amount of time I've invested in to this and how frustrated I was to see if that would solve the issue. She was very helpful and wanted to try to bring me back from utter frustration but as suspected, it did not work and I still have the same issue, so I now have to decide whether to keep it, or just return it and go back to my series 5. I'm to the point where it may go back.

I wanted to report this on communities for Apple and others to see if they have the same issue and so that it's documented online. It has been a very frustrating experience. If anyone has any other feedback that may be helpful to resolve this, it would be appreciated. I've tried everything that I can think of and chalk this up as a software error. There have also been 3 firmware updates since I got the watch and the issue is still there. When I switch back to my Series 5, it works as expected.