I know that’s how it’s supposed to work, but I saw it unlock my iPhone without the Watch not even being on my wrist yet.

Edit: Never mind. I was mistaken. After trying to replicate it a few times, it seems that what actually happened is I had my iPhone in front of me, my face unlocked the iPhone and then my iPhone unlocked my Watch the moment I got it in my wrist. I misread the notification telling me that my iPhone unlocked my Watch as if it were saying my Watch unlocked my iPhone.