I observed that file-system labels from folders on the source are not propagated to the labels of the destination folder during a merge. I think it would make sense to also merge the labels.
Don't know how path based and dynamically assigned labels should be treated in this case, but, given the way they are defined, I guess it would be best to not merge them.
I can see separate cases for dropping, merging and overwriting. It'll depend on what you were using the labels for.
I think the current behaviour makes the most sense. If the folder doesn't exist in the destination, it'll be created with the labels of the source. If it already exists, it'll be left alone. (In most cases, I would assume people would already have the label on the dest folder if they wanted it there.)
Of course, it depends what meaning the labels have, so no behaviour makes sense in all situations.