You have a Microsoft 565 subscription that contains 100 users and a Microsoft 365 group...

Step 1 – Scenario

Microsoft 365 E5 subscription with 100 users and a Microsoft 365 group (Group1).

A sensitivity label (Label1) is published as the default label for Group1.

Label1 contains two sublabels: Sublabel1 and Sublabel2.

Requirement: Ensure Sublabel1 settings are applied by default to Group1.

Step 2 – Understanding label hierarchy

In Microsoft Purview Information Protection, a parent label (Label1) is a container.

Sublabels (Sublabel1, Sublabel2) inherit the parent name but represent distinct configurations (encryption, watermarking, access, etc.).

A parent label itself cannot have a sublabel’s settings automatically applied unless policy configuration specifies which sublabel is used as the default publishing option.

Step 3 – Why " Modify the policy of Label1 " is correct

To apply Sublabel1 by default, the published policy for Label1 must be modified so that Sublabel1 is the default label within the policy.

Simply reordering sublabels (Option A) does not change the default assignment.

Duplicating Sublabel1’s settings into Label1 (Option B) defeats the purpose of having sublabels and adds redundancy.

Deleting the policy of Label1 and publishing Sublabel1 (Option D) would remove flexibility and is unnecessary.

Step 4 – Microsoft Reference

Microsoft Docs: “If you want a sublabel to be applied by default, configure the label policy to select that sublabel as the default label for documents and emails.”