When you are on 'Groups' and the search context is 'All groups', then you can still click the labels that you had assigned to a group, but you don't see a difference on the screen. That's because the filtering only happens when the search context is 'All my groups', 'Groups I'm in', 'Groups I own'.
When a label is clicked on the 'All groups' context, then the search context should change to 'All my groups' and display the filtered result list.
To replicate:
1. PersonA sets up 3 groups (2 of which are controlled groups, one is open) and adds PersonB to the 2 controlled groups.
3. PersonB creates a group.
4. Person B labels 1 group in which they are a member and their own group with 'testing'.
5. On Main menu -> Engage -> Groups, PersonB selects the search context 'All groups' and verifies that they can see all groups.
6. PersonB clicks on the label 'testing' in one of the two groups.
Expected result: The result list is filtered by the label and the search context is changed to 'All my groups' as 'All groups' doesn't display the filter.
Actual result: Nothing happens.
I tried to replicate this with the instructions given and it worked for me as expected (in Firefox and Chromium)