I asked MathWorks about this. Propagating labels from a referenced project is not currently supported.
How can I apply labels to project files when the project references another project?
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Monika Jaskolka on 9 Feb 2021
I have a main project that I want to use as part of several sub-projects. The idea is that the main project sets up global common shortcuts/paths that all sub-projects require. Each of the sub-projects references the main project. Then, each sub-project provides additional setup for project-specific shortcuts/paths/etc. The idea is shown in the image below, and I have set up some projects in this way.
However, when I apply this approach, I can no longer apply project labels to the files. Only if I un-reference the projects can I apply file labels again. Why is this?