Same issue for us. After speaking with Microsoft365 support they've advised they can't help and that this needs to be raised via App support directly. I have raised a case, and I've been batting back and forth to questions like "have you spoken to your IT helpdesk", even though I've already given them a wealth of information regarding the implementation and their own documentation which highlights how this should function.
Hopefully several tickets might expediate a fix. The instructions that 365 support gave me were as follows:
Kindly raise a ticket with the in-app support for dedicated support.
1. To do so, please click on your profile picture at the top left corner of the page.
2. click on the question mark button at the bottom left.
3. click on contact Outlook mobile support.
4. under "how can we help", click on "other" at the bottom.
5. on the "other" page, click on "other" again.
6. describe the issue you are faced with giving details of the Outlook mobile app version and when the sensitivity label feature last worked.
7. submit the request.
