diff --git a/qubesadmin/backup/restore.py b/qubesadmin/backup/restore.py
index 54288d72..0dce45c9 100644
--- a/qubesadmin/backup/restore.py
+++ b/qubesadmin/backup/restore.py
@@ -2020,6 +2020,12 @@ def _restore_vms_metadata(self, restore_info):
                 # can't create vm, but need backup info
                 new_vm = self.backup_app.domains[vm_name]
             else:
+                # do not fail if VM had a custom label. revert to red label
+                if not vm.label in self.app.labels:
+                    self.log.warning(
+                        'Reverting to red label while restoring %s ' \
+                        'since %s label does not exist', vm.name, vm.label)
+                    vm.label = "red"
                 try:
                     # first only create VMs, later setting may require other VMs
                     # be already created
diff --git a/qubesadmin/tests/backup/backupcompatibility.py b/qubesadmin/tests/backup/backupcompatibility.py
index d6b325f0..4184ad73 100644
--- a/qubesadmin/tests/backup/backupcompatibility.py
+++ b/qubesadmin/tests/backup/backupcompatibility.py
@@ -695,7 +695,7 @@
         },
         'test-net': {
             'klass': 'AppVM',
-            'label': 'red',
+            'label': 'scarlet',
             'properties': {
                 'maxmem': '300',
                 'memory': '300',
@@ -749,8 +749,11 @@ def assertCorrectlyConverted(self, backup_app, expected_data):
                 expected_data['domains'][vm]['template'], vm)
             self.assertEqual(backup_app.domains[vm].klass,
                 expected_data['domains'][vm]['klass'], vm)
-            self.assertEqual(backup_app.domains[vm].label,
-                expected_data['domains'][vm]['label'], vm)
+            if expected_data['domains'][vm]['label'] == 'scarlet':
+                self.assertEqual(backup_app.domains[vm].label, 'red', vm)
+            else:
+                self.assertEqual(backup_app.domains[vm].label,
+                    expected_data['domains'][vm]['label'], vm)
             self.assertEqual(backup_app.domains[vm].backup_path,
                 expected_data['domains'][vm]['backup_path'], vm)
             self.assertEqual(backup_app.domains[vm].included_in_backup,
@@ -1487,6 +1490,9 @@ def setup_expected_calls(self, parsed_qubes_xml, templates_map=None):
             [orig_admin_vm_list] + \
             [orig_admin_vm_list + b''.join(extra_vm_list_lines)] * \
             len(extra_vm_list_lines)
+        self.app.expected_calls[('dom0', 'admin.label.List', None, None)] = (
+            b'0\0red\norange\nyellow\ngreen\ngray\nblue\npurple\nblack\n'
+        )
 
     def mock_appmenus(self, queue, vm, stream):
         queue.put((vm.name, 'appmenus', None, stream.read()))