Folder Permissions not being inherited by 3rd level subfolders

We are having problems with Folder Permissions being Inherited to the 3rd level folder on Windows 2016 Server.

We have a file server on Windows 2012. We moved a folder "HR" to a new file server on Windows 2016.

Root: E
Folder 1 Name" "HR"
- Sub Folder 2 Name: "Employees"
- Sub Folder 3 Name: "Documents"

1. For "HR" folder we disabled inheritance from root E.
2. Modified the Securit settings under "Advanced Security Settings"
3. Checked "Replace all child objects"

The Folder permissions propogate to folders "HR" and "Employees". However, they do not propogate to the 3rd level folder "Documents" and downwards.

How do we correct this?