Overlapping Sensitivity Label Publishing Policies

Question

I have 2 sensitivity label publishing policies.

The first is scoped for all users in the organisation, pushes 4 labels sets a default label for Office Documents and Labels.
The second is scoped to a small sub-set of users, pushes a fifth label with encryption but does not have any default labels set.

Users in scope of the second policy can see all 5 labels published but do not have the default labels applied.
I guess that is down to precedence and the second publishing policy overriding the first.

If I reverse the order, will users see all 5 labels and have the defaults set?
(The target state is for the sub-set of users to see all 5 labels and have default labels applied).

Answer 1

Both should apply (as in the user should see all the included labels), but only the default label from the "winning" policy will apply as detailed here: https://learn.microsoft.com/en-us/microsoft-365/compliance/sensitivity-labels?view=o365-worldwide#label-policy-priority-order-matters
So changing the priority should fix the issue with the default label for you.