As you can see, I have $NODE_LABELS as a predefined parameter.

You can see the value for Node Label is "master".

This is incorrect, see next screenshot for environment variable output from upstream build.

Please ignore first screenshot showing Predefined parameters section as the $NL was set incorrectly, it is now just NL=$NODE_LABELS.

Correct NODE_LABEL value from upstream build.

From your description the issue is that you indicate that "master" should not be in the list of labels.

However the list of labels does includes the self label (which is the name of slave its self) as indicated in getAssignedLabels()[1] which is called from the CoreEnvironmentContributor[3].

So in this case I don't think this is an error, as I assume that upstream job was run on master.

[1] http://javadoc.jenkins-ci.org/hudson/model/Node.html#getAssignedLabels()
[2] http://javadoc.jenkins-ci.org/hudson/model/Node.html#getSelfLabel()
[3] https://github.com/jenkinsci/jenkins/blob/master/core/src/main/java/jenkins/model/CoreEnvironmentContributor.java#L56

In this case, the upstream job was not run on the master but a slave.

If you look at the screenshot of the job output, you will see the value of NODE_LABELS is not master, but the name of the slave which the job is running on.

All of the other environment variables are correctly passed to the downstream job except this one.

I think you have hit the issue that has already been fixed in commit
https://github.com/jenkinsci/parameterized-trigger-plugin/commit/16586248c382ef417e0aaa1d2cdb00baee87ec18
which has not yet been released.

Where the Environment variables are not correct, due to using the Dependancy Graph to trigger the downstream builds which always runs on master therefore gets the node labels from there, rather than from the slave that the job ran on.

Please retest with version 2.17 of the plugin and close if resolved.

I checked below at 2.17:
downstream triggered build got parameter NODE_LABELS and its value corerctly
but build is not triggered on node which received in NODE_LABELS.
downstream triggered job tested with below both parameters:
label
or
node

upstream build sending NODE_LABELS value by predefined parameter window.

as an alternative solution: nodelabelparamter setting at config of "trigger/call build on other project " at upstream job allow downstream build on correct slave as defined in NODE_LABELS

I tested and see fixed in latest Jenkins 1.532.2 + Parameterized Trigger 2.23.
How I tested:

1. Create a free style project "downstream"
   • Add "Execute Windows batch command" and call "set"
     • It would be same to add "Execute shell" and call "export"
2. Create a free style project "upstream"
   • Add "Execute Windows batch command" and call "set"
     • It would be same to add "Execute shell" and call "export"
   • Add "Trigger parameterized builds on other projects"
     • set "Projects to build" to "downstream"
     • Add "Predefined parameters" and set "PASSED_NODE_LABELS=${NODE_LABELS}"
3. Launch upstream build
4. See console log of downstream build and see "PASSED_NODE_LABELS=master" is output.