Posting this question with an answer so other's can find it.
We have an app on the store which records an activity's path. When we updated the WatchOS to version 4, our background gps updates stopped when the app transitioned into the background.
See the line marked "NEW!!" That's what allowed the app to receive background location updates again. You also need to have the properties set as mentioned in the link.
Apps that want to receive location updates when suspended must include
the UIBackgroundModes key (with the location value) in their app’s
Info.plist file and set the value of this property to YES. The
presence of the UIBackgroundModes key with the location value is
required for background updates
Some research found this link on Apple's Developer site that shows we need to set a new property in the location manager.
See the line marked "NEW!!" That's what allowed the app to receive background location updates again. You also need to have the properties set as mentioned in the link.