The Underworld was probably relocated underneath the Isle. Like how in the Percy Jackson series All the Greek Mythology Places relocated to America. The main question is how is hades supposed to maintain order without the use of magic (his flame power and all). Maybe the Underworld is the only place where magic is authorized but is sealed off completely from the Isle and Auradon? Sonds like an idea that can be explored in Wicked World or Part 2 but Part 2 seems more focused on Uma and the Sea theme (Pirates).
Hades is a god right. He has a son in the franchise named Hadie that lives on the isle of the lost. That means Hades is imprisonded there to. How could a god be able to be trapped by fairy godmother's magic? HE"S A GOD!