Fixed label select toggle not updating correctly

Closes #26119

app/assets/javascripts/labels_select.js

@@ -336,7 +336,11 @@
                 .removeClass('is-active')
             }
 
-            if ($dropdown.hasClass('js-filter-bulk-update') || $dropdown.hasClass('js-issuable-form-dropdown')) {
+            if ($dropdown.hasClass('js-issuable-form-dropdown')) {
+              return;
+            }
+
+            if ($dropdown.hasClass('js-filter-bulk-update')) {
               _this.enableBulkLabelDropdown();
               _this.setDropdownData($dropdown, isMarking, this.id(label));
               return;

changelogs/unreleased/label-select-toggle.yml

+---
+title: Fixed label dropdown toggle text not correctly updating
+merge_request:
+author:

spec/features/issues/form_spec.rb

@@ -68,6 +68,22 @@ describe 'New/edit issue', feature: true, js: true do
         end
       end
     end
+
+    it 'correctly updates the dropdown toggle when removing a label' do
+      click_button 'Labels'
+
+      page.within '.dropdown-menu-labels' do
+        click_link label.title
+      end
+
+      expect(find('.js-label-select')).to have_content(label.title)
+
+      page.within '.dropdown-menu-labels' do
+        click_link label.title
+      end
+
+      expect(find('.js-label-select')).to have_content('Labels')
+    end
   end
 
   context 'edit issue' do