Regression from Scala 2: Type variable in pattern match works with invariant type, fails with covariant

Scala 2.13.8 accepts both of these:

scala> def foo[T](xs: Set[T]): T = xs match { case xs: Set[u] => xs.head: u }
def foo[T](xs: Set[T]): T

scala> def foo[T](xs: List[T]): T = xs match { case xs: List[u] => xs.head: u }
def foo[T](xs: List[T]): T

Scala 3 accepts the Set one, but fails on the List version. with -explain for verbosity,

scala> def foo[T](xs: List[T]): T = xs match { case xs: List[u] => xs.head: u }
-- [E007] Type Mismatch Error: -------------------------------------------------
1 |def foo[T](xs: List[T]): T = xs match { case xs: List[u] => xs.head: u }
  |                                                            ^^^^^^^^^^
  |                                                            Found:    u
  |                                                            Required: T
  |-----------------------------------------------------------------------------
  | Explanation (enabled by `-explain`)
  |- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
  |
  | Tree: xs.head:u
  | I tried to show that
  |   u
  | conforms to
  |   T
  | but the comparison trace ended with `false`:
  |
  |   ==> u  <:  T
  |     ==> u  <:  Nothing in frozen constraint
  |       ==> Any  <:  Nothing (left is approximated) in frozen constraint
  |       <== Any  <:  Nothing (left is approximated) in frozen constraint = false
  |       ==> Any  <:  Nothing in frozen constraint
  |       <== Any  <:  Nothing in frozen constraint = false
  |     <== u  <:  Nothing in frozen constraint = false
  |     ==> Any  <:  T (left is approximated)
  |       ==> Any  <:  Nothing in frozen constraint
  |       <== Any  <:  Nothing in frozen constraint = false
  |     <== Any  <:  T (left is approximated) = false
  |     ==> Any  <:  T in frozen constraint
  |       ==> Any  <:  Nothing in frozen constraint
  |       <== Any  <:  Nothing in frozen constraint = false
  |     <== Any  <:  T in frozen constraint = false
  |   <== u  <:  T = false
  |
  | The tests were made under the empty constraint
   -----------------------------------------------------------------------------

I assume that the difference between Set and List here is that Set is invariant, List covariant.

(fyi @dwijnand; this came up during one of our pairing sessions)

[anatoliykmetyuk]

This issue was picked for the Issue Spree 14 of 12th April which takes place in a week from now. @dwijnand and @dos65 will be working on it. If you have any insight into the issue or guidance on how to fix it, please leave it here.

[anatoliykmetyuk]

This issue was picked for the Issue Spree 15 of May 3rd which takes place a week from now. @dwijnand and @joke1196 will be working on it. If you have any insight into the issue or guidance on how to fix it, please leave it here.