diff --git a/backend/.sqlx/query-ae949d9470fe6687b312fbd9d617d47813a035eb948f0312a8168bb1365607fb.json b/backend/.sqlx/query-4ca364e493dd51d5f83489dc4674eeadcf092b37a20d03d52f2160ca21f79fb0.json
similarity index 51%
rename from backend/.sqlx/query-ae949d9470fe6687b312fbd9d617d47813a035eb948f0312a8168bb1365607fb.json
rename to backend/.sqlx/query-4ca364e493dd51d5f83489dc4674eeadcf092b37a20d03d52f2160ca21f79fb0.json
index ff06d78624..f486fdd689 100644
--- a/backend/.sqlx/query-ae949d9470fe6687b312fbd9d617d47813a035eb948f0312a8168bb1365607fb.json
+++ b/backend/.sqlx/query-4ca364e493dd51d5f83489dc4674eeadcf092b37a20d03d52f2160ca21f79fb0.json
@@ -1,6 +1,6 @@
 {
   "db_name": "PostgreSQL",
-  "query": "INSERT INTO folder (workspace_id, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as)\n         SELECT $2, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as\n         FROM folder\n         WHERE workspace_id = $1",
+  "query": "INSERT INTO folder (workspace_id, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as, labels)\n         SELECT $2, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as, labels\n         FROM folder\n         WHERE workspace_id = $1",
   "describe": {
     "columns": [],
     "parameters": {
@@ -11,5 +11,5 @@
     },
     "nullable": []
   },
-  "hash": "ae949d9470fe6687b312fbd9d617d47813a035eb948f0312a8168bb1365607fb"
+  "hash": "4ca364e493dd51d5f83489dc4674eeadcf092b37a20d03d52f2160ca21f79fb0"
 }
diff --git a/backend/windmill-api-groups/src/folders.rs b/backend/windmill-api-groups/src/folders.rs
index af2f96ef42..8db0130cb5 100644
--- a/backend/windmill-api-groups/src/folders.rs
+++ b/backend/windmill-api-groups/src/folders.rs
@@ -293,7 +293,7 @@ async fn create_folder(
         ng.summary,
         authed.username,
         default_permissioned_as,
-        ng.labels.as_deref() as Option<&[String]>
+        ng.labels.as_deref().filter(|l| !l.is_empty()) as Option<&[String]>
     )
     .execute(&mut *tx)
     .await {
@@ -472,17 +472,22 @@ async fn update_folder(
     }
 
     if let Some(labels) = ng.labels.as_ref() {
-        sqlb.set(
-            "labels",
-            "?".bind(&format!(
-                "{{{}}}",
-                labels
-                    .iter()
-                    .map(|x| format!("\"{}\"", x.replace('\\', "\\\\").replace('"', "\\\"")))
-                    .collect::<Vec<_>>()
-                    .join(","),
-            )),
-        );
+        if labels.is_empty() {
+            // normalize cleared labels to NULL so the field stays out of API/tarball output
+            sqlb.set("labels", "NULL");
+        } else {
+            sqlb.set(
+                "labels",
+                "?".bind(&format!(
+                    "{{{}}}",
+                    labels
+                        .iter()
+                        .map(|x| format!("\"{}\"", x.replace('\\', "\\\\").replace('"', "\\\"")))
+                        .collect::<Vec<_>>()
+                        .join(","),
+                )),
+            );
+        }
     }
 
     sqlb.returning("*");
diff --git a/backend/windmill-api-workspaces/src/workspaces.rs b/backend/windmill-api-workspaces/src/workspaces.rs
index 0cace993de..e0037861d3 100644
--- a/backend/windmill-api-workspaces/src/workspaces.rs
+++ b/backend/windmill-api-workspaces/src/workspaces.rs
@@ -4254,8 +4254,8 @@ async fn clone_folders(
     target_workspace_id: &str,
 ) -> Result<()> {
     sqlx::query!(
-        "INSERT INTO folder (workspace_id, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as)
-         SELECT $2, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as
+        "INSERT INTO folder (workspace_id, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as, labels)
+         SELECT $2, name, display_name, owners, extra_perms, summary, edited_at, created_by, default_permissioned_as, labels
          FROM folder
          WHERE workspace_id = $1",
         source_workspace_id,