NGINX could not resolve host with upstream and path

I am using NGINX as a load balancer to route all traffic on example.com to one of the two servers. It works fine if there is no path added to the URL https://example.com but if there is a path https://example.com/legal then I get an error:

could not resolve host servers:8080

It seems like the path that is added to the URL makes nginx "forget" about the servers variable and it treats it like a real domain, which is obviously not working.

My NGINX config:

upstream servers {
    server 192.0.0.1:8080;
    server 192.0.0.2:8080;
}

server {
    listen 80;
    server_name example.com;

    return 302 https://example.com$uri$is_args$args;
}

server {
    listen 443;
    server_name example.com;

    // ssl config and certs

    location / {
        proxy_pass http://servers;
    }
}

What setting am I missing here?