diff --git a/.egg-state/contracts/402.json b/.egg-state/contracts/402.json
new file mode 100644
index 0000000000..53c26ac1a1
--- /dev/null
+++ b/.egg-state/contracts/402.json
@@ -0,0 +1,476 @@
+{
+  "schemaVersion": "1.0",
+  "issue": {
+    "number": 402,
+    "title": "leverage issue labels for SDLC workflow",
+    "url": "https://github.com/jwbron/egg/issues/402"
+  },
+  "current_phase": "implement",
+  "acceptance_criteria": [
+    {
+      "id": "ac-1",
+      "description": "[TASK-1-1] Script creates all 5 labels with correct colors and descriptions; re-running is safe",
+      "verified": false
+    },
+    {
+      "id": "ac-2",
+      "description": "[TASK-1-2] Label no longer exists; existing issues have it removed",
+      "verified": false
+    },
+    {
+      "id": "ac-3",
+      "description": "[TASK-2-1] Pipeline triggers when sdlc:refine label is added",
+      "verified": false
+    },
+    {
+      "id": "ac-4",
+      "description": "[TASK-2-2] Correct phase label is applied when workflow starts",
+      "verified": false
+    },
+    {
+      "id": "ac-5",
+      "description": "[TASK-2-3] Created PRs get sdlc:pr label",
+      "verified": false
+    },
+    {
+      "id": "ac-6",
+      "description": "[TASK-3-1] When refine/plan phase posts approval checkbox, label is added",
+      "verified": false
+    },
+    {
+      "id": "ac-7",
+      "description": "[TASK-3-2] On approval, old phase label removed, new added, awaiting-approval removed",
+      "verified": false
+    },
+    {
+      "id": "ac-8",
+      "description": "[TASK-3-3] sdlc:awaiting-approval present when decisions pending, removed when resolved",
+      "verified": false
+    },
+    {
+      "id": "ac-9",
+      "description": "[TASK-4-1] When PR is created, sdlc:implement removed and sdlc:pr added",
+      "verified": false
+    },
+    {
+      "id": "ac-10",
+      "description": "[TASK-4-2] Phase completion comments trigger adding sdlc:awaiting-approval",
+      "verified": false
+    },
+    {
+      "id": "ac-11",
+      "description": "[TASK-4-3] Reusable script handles label transitions with error handling",
+      "verified": false
+    },
+    {
+      "id": "ac-12",
+      "description": "[TASK-5-1] Cleanup runs for issues with any SDLC phase label",
+      "verified": false
+    },
+    {
+      "id": "ac-13",
+      "description": "[TASK-5-2] Closed SDLC issues have phase labels removed",
+      "verified": false
+    },
+    {
+      "id": "ac-14",
+      "description": "[TASK-6-1] Contract verification triggers on PRs with sdlc:pr label",
+      "verified": false
+    },
+    {
+      "id": "ac-15",
+      "description": "[TASK-7-1] Documentation describes all SDLC labels and their management",
+      "verified": false
+    },
+    {
+      "id": "ac-16",
+      "description": "[TASK-7-2] No stale references to egg-sdlc remain",
+      "verified": false
+    },
+    {
+      "id": "ac-17",
+      "description": "[TASK-7-3] Test verifies labels transition correctly through phase changes",
+      "verified": false
+    }
+  ],
+  "phases": [
+    {
+      "id": "phase-1",
+      "name": "Create Labels and Setup Script",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-1-1",
+          "description": "Create label setup script for SDLC labels (idempotent)",
+          "status": "pending",
+          "acceptance_criteria": "Script creates all 5 labels with correct colors and descriptions; re-running is safe",
+          "files_affected": [
+            ".github/scripts/setup-sdlc-labels.sh"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-1-2",
+          "description": "Delete the existing egg-sdlc label from the repository",
+          "status": "pending",
+          "acceptance_criteria": "Label no longer exists; existing issues have it removed",
+          "files_affected": [],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-2",
+      "name": "Update Pipeline Trigger Logic",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-2-1",
+          "description": "Update pipeline trigger condition from egg-sdlc to sdlc:refine",
+          "status": "pending",
+          "acceptance_criteria": "Pipeline triggers when sdlc:refine label is added",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-2-2",
+          "description": "Add logic to ensure correct phase label is applied during init",
+          "status": "pending",
+          "acceptance_criteria": "Correct phase label is applied when workflow starts",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-2-3",
+          "description": "Update PR label addition logic to use sdlc:pr instead of egg-sdlc",
+          "status": "pending",
+          "acceptance_criteria": "Created PRs get sdlc:pr label",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-3",
+      "name": "Add Label Transitions in HITL Workflow",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-3-1",
+          "description": "Add sdlc:awaiting-approval label when posting phase completion comments",
+          "status": "pending",
+          "acceptance_criteria": "When refine/plan phase posts approval checkbox, label is added",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-3-2",
+          "description": "Remove sdlc:awaiting-approval and transition phase label on approval",
+          "status": "pending",
+          "acceptance_criteria": "On approval, old phase label removed, new added, awaiting-approval removed",
+          "files_affected": [
+            ".github/workflows/sdlc-hitl.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-3-3",
+          "description": "Update handle-decision job to manage approval label for HITL decisions",
+          "status": "pending",
+          "acceptance_criteria": "sdlc:awaiting-approval present when decisions pending, removed when resolved",
+          "files_affected": [
+            ".github/workflows/sdlc-hitl.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-4",
+      "name": "Add Label Transitions in Main Pipeline",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-4-1",
+          "description": "Add label transition logic when advancing from implement to PR phase",
+          "status": "pending",
+          "acceptance_criteria": "When PR is created, sdlc:implement removed and sdlc:pr added",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-4-2",
+          "description": "Add sdlc:awaiting-approval when posting phase completion comments in pipeline",
+          "status": "pending",
+          "acceptance_criteria": "Phase completion comments trigger adding sdlc:awaiting-approval",
+          "files_affected": [
+            ".github/workflows/sdlc-pipeline.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-4-3",
+          "description": "Add helper script for atomic label transitions",
+          "status": "pending",
+          "acceptance_criteria": "Reusable script handles label transitions with error handling",
+          "files_affected": [
+            ".github/scripts/transition-sdlc-label.sh"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-5",
+      "name": "Update Cleanup Workflow",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-5-1",
+          "description": "Update cleanup trigger condition to check for any sdlc:* label",
+          "status": "pending",
+          "acceptance_criteria": "Cleanup runs for issues with any SDLC phase label",
+          "files_affected": [
+            ".github/workflows/on-issue-closed.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-5-2",
+          "description": "Remove all SDLC labels on issue close",
+          "status": "pending",
+          "acceptance_criteria": "Closed SDLC issues have phase labels removed",
+          "files_affected": [
+            ".github/workflows/on-issue-closed.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-6",
+      "name": "Update Contract Verification Workflow",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-6-1",
+          "description": "Update PR contract verification trigger to check for sdlc:pr label",
+          "status": "pending",
+          "acceptance_criteria": "Contract verification triggers on PRs with sdlc:pr label",
+          "files_affected": [
+            ".github/workflows/on-pull-request-contract-verify.yml"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    },
+    {
+      "id": "phase-7",
+      "name": "Documentation and Testing",
+      "status": "pending",
+      "tasks": [
+        {
+          "id": "task-7-1",
+          "description": "Update docs/guides/sdlc-pipeline.md with new label documentation",
+          "status": "pending",
+          "acceptance_criteria": "Documentation describes all SDLC labels and their management",
+          "files_affected": [
+            "docs/guides/sdlc-pipeline.md"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-7-2",
+          "description": "Update any references to egg-sdlc in other documentation",
+          "status": "pending",
+          "acceptance_criteria": "No stale references to egg-sdlc remain",
+          "files_affected": [
+            "docs/guides/sdlc-pipeline.md",
+            "CLAUDE.md"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        },
+        {
+          "id": "task-7-3",
+          "description": "Add integration test for label transitions",
+          "status": "pending",
+          "acceptance_criteria": "Test verifies labels transition correctly through phase changes",
+          "files_affected": [
+            "integration_tests/sdlc/test_label_transitions.py"
+          ],
+          "commit": null,
+          "review_cycles": 0,
+          "max_cycles": 3,
+          "escalated": false,
+          "notes": ""
+        }
+      ],
+      "review_cycles": 0,
+      "max_cycles": 3,
+      "escalated": false,
+      "escalation_reason": null,
+      "review_feedback": []
+    }
+  ],
+  "decisions": [],
+  "circuit_breaker": {
+    "total_cycles": 0,
+    "max_total_cycles": 10,
+    "status": "closed"
+  },
+  "workflow_owner": "jwbron",
+  "audit_log": [
+    {
+      "timestamp": "2026-02-09T03:02:49Z",
+      "actor": "system",
+      "role": "reviewer",
+      "action": "update",
+      "field_path": "refine_review_cycles",
+      "old_value": 0,
+      "new_value": 1,
+      "reason": "Refine review cycle 1: approved"
+    },
+    {
+      "timestamp": "2026-02-09T03:04:57Z",
+      "actor": "jwbron",
+      "role": "human",
+      "action": "transition",
+      "field_path": "current_phase",
+      "old_value": "refine",
+      "new_value": "plan",
+      "reason": "Phase approved by human"
+    },
+    {
+      "timestamp": "2026-02-09T03:10:53Z",
+      "actor": "system",
+      "role": "reviewer",
+      "action": "update",
+      "field_path": "plan_review_cycles",
+      "old_value": 0,
+      "new_value": 1,
+      "reason": "Plan review cycle 1: approved"
+    },
+    {
+      "timestamp": "2026-02-09T03:17:43Z",
+      "actor": "jwbron",
+      "role": "human",
+      "action": "transition",
+      "field_path": "current_phase",
+      "old_value": "plan",
+      "new_value": "implement",
+      "reason": "Phase approved by human"
+    }
+  ],
+  "refine_review_cycles": 1,
+  "refine_review_feedback": "",
+  "plan_review_cycles": 1,
+  "plan_review_feedback": "",
+  "pr": {
+    "title": "Add phase-based labels for SDLC workflow state tracking",
+    "description": "Implements phase-based labeling for the SDLC pipeline to provide visual status\ntracking and enable filtering issues by pipeline state. Replaces the single\n`egg-sdlc` trigger label with phase labels (`sdlc:refine`, `sdlc:plan`,\n`sdlc:implement`, `sdlc:pr`) plus an approval modifier (`sdlc:awaiting-approval`).\n\nCloses #402."
+  }
+}
diff --git a/.egg-state/drafts/402-analysis.md b/.egg-state/drafts/402-analysis.md
new file mode 100644
index 0000000000..0c2a7fe094
--- /dev/null
+++ b/.egg-state/drafts/402-analysis.md
@@ -0,0 +1,169 @@
+# Analysis: Leverage Issue Labels for SDLC Workflow
+
+> Issue: #402 | Phase: refine
+
+## Problem Statement
+
+The SDLC pipeline currently uses the `egg-sdlc` label as the primary trigger for workflow execution, but the label ecosystem doesn't capture the current **state** of an issue as it progresses through the pipeline phases. Users and automation cannot easily determine at a glance whether an issue is in refine, plan, implement, or PR phase—or whether it's awaiting human approval.
+
+**Current state**: Labels are used as triggers (`egg-sdlc`) and markers (`self-improvement`), but not as state indicators.
+
+**Desired outcome**: Labels should reflect the current SDLC phase and approval status, enabling:
+- Visual dashboard filtering by phase
+- Automation queries for issues awaiting approval
+- Clear status communication without reading comments
+
+## Current Behavior
+
+### Existing Labels
+The repository currently has these labels (from `gh label list`):
+
+| Label | Purpose | Status |
+|-------|---------|--------|
+| `egg-sdlc` | Pipeline trigger | Active |
+| `self-improvement` | Auto-generated improvement issues | Active |
+| `bug`, `enhancement`, `documentation` | Standard GitHub labels | Active |
+| `dependencies`, `github_actions`, `python` | Dependabot/type labels | Active |
+
+### Current Pipeline State Tracking
+State is tracked via:
+1. **Contract JSON**: `.egg-state/contracts/{issue}.json` with `current_phase` field
+2. **Workflow job names**: GitHub Actions UI shows which job is running
+3. **Issue comments**: Phase completion posts with approval checkboxes
+
+**Problem**: None of these are queryable via GitHub's label-based filtering. Users cannot filter the issue list to see "all issues awaiting approval" or "all issues in implement phase."
+
+### Relevant Code Paths
+- Pipeline trigger: `.github/workflows/sdlc-pipeline.yml:41-44` listens for `egg-sdlc` label
+- Label addition: `.github/workflows/sdlc-pipeline.yml:579-582` adds `egg-sdlc` to PRs
+- Contract phase: `.egg-state/contracts/{issue}.json` contains `current_phase`
+
+## Constraints
+
+- **Label consistency**: Labels must be added/removed atomically with phase transitions to avoid stale states
+- **Workflow triggers**: Adding/removing labels can trigger workflows; must avoid infinite loops
+- **Concurrency**: Multiple workflow runs may attempt label changes simultaneously
+- **GitHub API rate limits**: Frequent label changes contribute to rate limit consumption
+- **Backward compatibility**: Existing `egg-sdlc` trigger must continue to work
+
+## Options Considered
+
+### Option A: Phase Labels (Mutually Exclusive)
+
+**Approach**: Add one label per pipeline phase (`sdlc:refine`, `sdlc:plan`, `sdlc:implement`, `sdlc:pr`) plus an approval state label (`sdlc:awaiting-approval`). Only one phase label is active at a time.
+
+**Labels to add**:
+- `sdlc:refine` (color: `#c2e0c6`)
+- `sdlc:plan` (color: `#bfdadc`)
+- `sdlc:implement` (color: `#fef2c0`)
+- `sdlc:pr` (color: `#d4c5f9`)
+- `sdlc:awaiting-approval` (color: `#fbca04`)
+
+**Implementation**:
+1. When phase transitions, remove previous phase label, add new phase label
+2. When HITL approval is required, add `sdlc:awaiting-approval`
+3. When human approves, remove `sdlc:awaiting-approval`
+
+**Pros**:
+- Clear visual indication of current phase
+- Queryable via GitHub search (`label:"sdlc:refine"`)
+- Namespace prefix (`sdlc:`) groups related labels
+- Approval state is independent of phase (can be in "implement" and "awaiting-approval")
+
+**Cons**:
+- More label churn (add/remove on each transition)
+- Requires workflow updates to manage label lifecycle
+- Stale labels if workflow fails mid-transition
+
+### Option B: Compound State Label
+
+**Approach**: Use a single label that encodes both phase and status (e.g., `sdlc:refine-in-progress`, `sdlc:refine-awaiting-approval`, `sdlc:plan-in-progress`).
+
+**Labels to add** (10 total):
+- `sdlc:refine-in-progress`
+- `sdlc:refine-awaiting-approval`
+- `sdlc:plan-in-progress`
+- `sdlc:plan-awaiting-approval`
+- `sdlc:implement-in-progress`
+- `sdlc:implement-review`
+- `sdlc:pr-ready`
+- `sdlc:pr-changes-requested`
+
+**Pros**:
+- Single label captures full state
+- No need to track multiple labels
+
+**Cons**:
+- Many labels (combinatorial explosion)
+- Harder to query "all awaiting approval" across phases
+- More labels to maintain
+
+### Option C: Phase Labels + Suffix Modifiers
+
+**Approach**: Use phase labels with optional modifier labels that can apply to any phase.
+
+**Labels**:
+- Phase: `sdlc:refine`, `sdlc:plan`, `sdlc:implement`, `sdlc:pr`
+- Modifiers: `awaiting-approval`, `blocked`
+
+**Pros**:
+- Modifiers are reusable across phases
+- Can query "awaiting-approval" independent of phase
+- Fewer total labels than Option B
+
+**Cons**:
+- Two-label system slightly more complex
+- Modifier labels aren't namespaced (could conflict)
+
+## Recommended Approach
+
+**Option A: Phase Labels (Mutually Exclusive)** with the `sdlc:awaiting-approval` modifier.
+
+**Justification**:
+1. **Clarity**: Each phase has exactly one label, making state unambiguous
+2. **Queryability**: GitHub search supports `label:"sdlc:refine" label:"sdlc:awaiting-approval"`
+3. **Namespace**: The `sdlc:` prefix groups labels visually in the label picker
+4. **Simplicity**: 5 new labels (vs. 8-10 for Option B)
+5. **Alignment with contract**: Labels mirror `current_phase` in the contract JSON
+
+**Proposed Label Set**:
+
+| Label | Color | Description |
+|-------|-------|-------------|
+| `sdlc:refine` | `#c2e0c6` (green) | Issue is in refine phase |
+| `sdlc:plan` | `#bfdadc` (teal) | Issue is in plan phase |
+| `sdlc:implement` | `#fef2c0` (yellow) | Issue is in implement phase |
+| `sdlc:pr` | `#d4c5f9` (purple) | PR created, awaiting human merge |
+| `sdlc:awaiting-approval` | `#fbca04` (orange) | Human approval required to proceed |
+
+**Implementation Steps**:
+1. Add labels to repository via `gh label create`
+2. Update `sdlc-pipeline.yml` to add/remove phase labels at transitions
+3. Update HITL workflows to add `sdlc:awaiting-approval` when pausing for human input
+4. Add label removal logic to cleanup workflow (`on-issue-closed.yml`)
+5. Document label meanings in `docs/guides/sdlc-pipeline.md`
+
+## Open Questions
+
+**Question 1** (multiple-choice via HITL):
+
+Should the `egg-sdlc` trigger label be retained alongside phase labels, or replaced by the new labels?
+
+- **Retain both**: Keep `egg-sdlc` as the trigger, add phase labels as state indicators
+- **Replace**: Remove `egg-sdlc`, use `sdlc:refine` as the initial trigger
+- **Other (explain in reply)**
+
+---
+
+**Question 2** (multiple-choice via HITL):
+
+How should the pipeline handle label synchronization if a workflow fails mid-transition?
+
+- **Best effort**: Label may be stale; next workflow run corrects it
+- **Reconciliation job**: Periodic job syncs labels with contract state
+- **Defensive check**: Each phase reads contract and corrects label before proceeding
+- **Other (explain in reply)**
+
+---
+
+*Authored-by: egg*
diff --git a/.egg-state/drafts/402-plan.md b/.egg-state/drafts/402-plan.md
new file mode 100644
index 0000000000..46e923572e
--- /dev/null
+++ b/.egg-state/drafts/402-plan.md
@@ -0,0 +1,292 @@
+# Plan: Leverage Issue Labels for SDLC Workflow
+
+> Issue: #402 | Phase: plan
+
+## Summary
+
+This plan implements phase-based labeling for the SDLC pipeline, replacing the single `egg-sdlc` trigger label with a set of mutually exclusive phase labels (`sdlc:refine`, `sdlc:plan`, `sdlc:implement`, `sdlc:pr`) plus an approval state modifier (`sdlc:awaiting-approval`). This enables visual status tracking on GitHub's issue list and supports filtering/querying by phase.
+
+The implementation follows the approach approved in the refine phase analysis: Option A (Phase Labels) with the human decision to **replace** `egg-sdlc` with `sdlc:refine` as the initial trigger.
+
+## Implementation Phases
+
+### Phase 1: Create Labels and Setup Script
+
+**Goal**: Establish the new label set in the repository and create a reusable setup script for label management.
+
+**Tasks**:
+- [TASK-1-1] Create label setup script that can create/update SDLC labels idempotently — Acceptance: Script creates all 5 labels with correct colors and descriptions; re-running is safe (idempotent)
+- [TASK-1-2] Delete the existing `egg-sdlc` label from the repository — Acceptance: Label no longer exists; existing issues with the label have it removed
+
+**Dependencies**: None
+
+**Exit criteria**: All 5 new labels exist in the repository (`sdlc:refine`, `sdlc:plan`, `sdlc:implement`, `sdlc:pr`, `sdlc:awaiting-approval`); `egg-sdlc` label is removed.
+
+### Phase 2: Update Pipeline Trigger Logic
+
+**Goal**: Modify `sdlc-pipeline.yml` to trigger on `sdlc:refine` instead of `egg-sdlc`, and add label management during initialization.
+
+**Tasks**:
+- [TASK-2-1] Update pipeline trigger condition from `egg-sdlc` to `sdlc:refine` — Acceptance: Pipeline triggers when `sdlc:refine` label is added; does not trigger on other labels
+- [TASK-2-2] Add logic to ensure correct phase label is applied during init — Acceptance: When workflow starts, the correct phase label is applied (e.g., `sdlc:refine` for new issues, or the current phase label if resuming)
+- [TASK-2-3] Update PR label addition logic to use `sdlc:pr` instead of `egg-sdlc` — Acceptance: Created PRs get `sdlc:pr` label instead of `egg-sdlc`
+
+**Dependencies**: Phase 1 (labels must exist)
+
+**Exit criteria**: Pipeline triggers on `sdlc:refine`; correct phase label is applied on init; PRs receive `sdlc:pr` label.
+
+### Phase 3: Add Label Transitions in HITL Workflow
+
+**Goal**: Implement label transitions during phase approvals and HITL decisions in `sdlc-hitl.yml`.
+
+**Tasks**:
+- [TASK-3-1] Add `sdlc:awaiting-approval` label when posting phase completion comments — Acceptance: When refine/plan phase posts approval checkbox, `sdlc:awaiting-approval` is added
+- [TASK-3-2] Remove `sdlc:awaiting-approval` and transition phase label on approval — Acceptance: When human approves, old phase label is removed, new phase label is added, `sdlc:awaiting-approval` is removed
+- [TASK-3-3] Update handle-decision job to manage approval label for HITL decisions — Acceptance: When HITL decisions are pending, `sdlc:awaiting-approval` is present; removed when all resolved
+
+**Dependencies**: Phase 1, Phase 2
+
+**Exit criteria**: Labels correctly reflect phase and approval state throughout HITL interactions.
+
+### Phase 4: Add Label Transitions in Main Pipeline
+
+**Goal**: Ensure phase labels are updated during automatic phase transitions within `sdlc-pipeline.yml`.
+
+**Tasks**:
+- [TASK-4-1] Add label transition logic when advancing from implement to PR phase — Acceptance: When implement completes and PR is created, `sdlc:implement` is removed and `sdlc:pr` is added
+- [TASK-4-2] Add `sdlc:awaiting-approval` when posting phase completion comments in pipeline — Acceptance: Refine and plan phase completion comments trigger adding `sdlc:awaiting-approval`
+- [TASK-4-3] Add helper function/script for atomic label transitions (remove old + add new) — Acceptance: Reusable script handles label transitions with error handling; used by both workflows
+
+**Dependencies**: Phase 1, Phase 2, Phase 3
+
+**Exit criteria**: All automatic phase transitions update labels atomically.
+
+### Phase 5: Update Cleanup Workflow
+
+**Goal**: Update `on-issue-closed.yml` to handle new label set.
+
+**Tasks**:
+- [TASK-5-1] Update cleanup trigger condition to check for any `sdlc:*` label — Acceptance: Cleanup runs for issues with any SDLC phase label, not just `egg-sdlc`
+- [TASK-5-2] Remove all SDLC labels on issue close (optional cleanup) — Acceptance: Closed SDLC issues have phase labels removed for cleanliness
+
+**Dependencies**: Phase 1
+
+**Exit criteria**: Cleanup workflow handles new label scheme.
+
+### Phase 6: Update Contract Verification Workflow
+
+**Goal**: Update `on-pull-request-contract-verify.yml` to use new labels.
+
+**Tasks**:
+- [TASK-6-1] Update PR contract verification trigger to check for `sdlc:pr` label — Acceptance: Contract verification triggers on PRs with `sdlc:pr` label
+
+**Dependencies**: Phase 2
+
+**Exit criteria**: PR contract verification works with new label scheme.
+
+### Phase 7: Documentation and Testing
+
+**Goal**: Update documentation and verify the implementation works end-to-end.
+
+**Tasks**:
+- [TASK-7-1] Update `docs/guides/sdlc-pipeline.md` with new label documentation — Acceptance: Documentation describes all SDLC labels, their meanings, and how they're managed
+- [TASK-7-2] Update any references to `egg-sdlc` in other documentation — Acceptance: No stale references to `egg-sdlc` remain
+- [TASK-7-3] Add integration test for label transitions — Acceptance: Test verifies labels transition correctly through mock phase changes
+
+**Dependencies**: All previous phases
+
+**Exit criteria**: Documentation is updated; integration tests pass.
+
+## Test Strategy
+
+- **Unit tests**: No new unit tests required (workflow YAML doesn't have unit tests)
+- **Integration tests**:
+  - Add test in `integration_tests/sdlc/` that mocks label API calls and verifies correct labels are added/removed during phase transitions
+  - Test idempotency: running label setup twice produces same result
+- **Manual testing**:
+  1. Create a test issue, add `sdlc:refine` label
+  2. Verify pipeline starts and `sdlc:refine` label is present
+  3. Approve refine phase, verify `sdlc:refine` → `sdlc:plan` transition
+  4. Continue through pipeline, verifying labels at each phase
+  5. Verify `sdlc:awaiting-approval` appears/disappears at HITL checkpoints
+
+## Rollback Plan
+
+1. **Immediate rollback**: Revert the PR (all changes are in workflow YAML files)
+2. **Label restoration**:
+   ```bash
+   gh label create "egg-sdlc" --description "Trigger SDLC pipeline" --color "0e8a16"
+   ```
+3. **In-flight issues**: Manually add `egg-sdlc` label to any issues that were mid-pipeline
+4. **New labels**: Can be left in place or removed; they won't affect anything if workflows are reverted
+
+The rollback is straightforward because:
+- All changes are in workflow YAML files (single PR revert)
+- Label operations are idempotent (can recreate old label)
+- No database migrations or data transformations
+
+## Risk Assessment
+
+| Risk | Likelihood | Impact | Mitigation |
+|------|------------|--------|------------|
+| Workflow trigger loops (label change triggers workflow that changes label) | Medium | High | Use `types: [labeled]` filter and only trigger on `sdlc:refine`; other phase labels are internal state only |
+| Stale labels if workflow fails mid-transition | Low | Low | Best-effort approach; next workflow run will correct labels based on contract state |
+| Concurrent label modifications causing race conditions | Low | Medium | Use GitHub API's `add-label` and `remove-label` which are atomic; accept eventual consistency |
+| Existing `egg-sdlc` issues lose their label during migration | Medium | Medium | Before deleting `egg-sdlc`, query for all issues with it and document them; manually triage any active ones |
+
+## Migration Notes
+
+**Breaking change**: The `egg-sdlc` label will no longer trigger the pipeline. Users must use `sdlc:refine` instead.
+
+**Migration steps** (to be done by human before/during deploy):
+1. Check for any issues currently using `egg-sdlc` label: `gh issue list --label "egg-sdlc" --state open`
+2. For active pipeline issues: wait for completion or manually transition to new labels
+3. For issues not yet started: remove `egg-sdlc`, add `sdlc:refine` to trigger
+
+---
+
+## Structured Task Appendix
+
+The following YAML block is machine-readable and will be extracted into the contract.
+It must accurately reflect the tasks described above. The `pr:` section provides the
+title and description that will be used when creating the pull request.
+
+```yaml
+# yaml-tasks
+pr:
+  title: "Add phase-based labels for SDLC workflow state tracking"
+  description: |
+    Implements phase-based labeling for the SDLC pipeline to provide visual status
+    tracking and enable filtering issues by pipeline state. Replaces the single
+    `egg-sdlc` trigger label with phase labels (`sdlc:refine`, `sdlc:plan`,
+    `sdlc:implement`, `sdlc:pr`) plus an approval modifier (`sdlc:awaiting-approval`).
+
+    Closes #402.
+phases:
+  - id: 1
+    name: Create Labels and Setup Script
+    goal: Establish the new label set in the repository
+    tasks:
+      - id: TASK-1-1
+        description: Create label setup script for SDLC labels (idempotent)
+        acceptance: Script creates all 5 labels with correct colors and descriptions; re-running is safe
+        files:
+          - .github/scripts/setup-sdlc-labels.sh
+      - id: TASK-1-2
+        description: Delete the existing egg-sdlc label from the repository
+        acceptance: Label no longer exists; existing issues have it removed
+        files: []
+  - id: 2
+    name: Update Pipeline Trigger Logic
+    goal: Modify sdlc-pipeline.yml to trigger on sdlc:refine
+    tasks:
+      - id: TASK-2-1
+        description: Update pipeline trigger condition from egg-sdlc to sdlc:refine
+        acceptance: Pipeline triggers when sdlc:refine label is added
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+      - id: TASK-2-2
+        description: Add logic to ensure correct phase label is applied during init
+        acceptance: Correct phase label is applied when workflow starts
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+      - id: TASK-2-3
+        description: Update PR label addition logic to use sdlc:pr instead of egg-sdlc
+        acceptance: Created PRs get sdlc:pr label
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+  - id: 3
+    name: Add Label Transitions in HITL Workflow
+    goal: Implement label transitions during phase approvals
+    tasks:
+      - id: TASK-3-1
+        description: Add sdlc:awaiting-approval label when posting phase completion comments
+        acceptance: When refine/plan phase posts approval checkbox, label is added
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+      - id: TASK-3-2
+        description: Remove sdlc:awaiting-approval and transition phase label on approval
+        acceptance: On approval, old phase label removed, new added, awaiting-approval removed
+        files:
+          - .github/workflows/sdlc-hitl.yml
+      - id: TASK-3-3
+        description: Update handle-decision job to manage approval label for HITL decisions
+        acceptance: sdlc:awaiting-approval present when decisions pending, removed when resolved
+        files:
+          - .github/workflows/sdlc-hitl.yml
+  - id: 4
+    name: Add Label Transitions in Main Pipeline
+    goal: Ensure phase labels are updated during automatic phase transitions
+    tasks:
+      - id: TASK-4-1
+        description: Add label transition logic when advancing from implement to PR phase
+        acceptance: When PR is created, sdlc:implement removed and sdlc:pr added
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+      - id: TASK-4-2
+        description: Add sdlc:awaiting-approval when posting phase completion comments in pipeline
+        acceptance: Phase completion comments trigger adding sdlc:awaiting-approval
+        files:
+          - .github/workflows/sdlc-pipeline.yml
+      - id: TASK-4-3
+        description: Add helper script for atomic label transitions
+        acceptance: Reusable script handles label transitions with error handling
+        files:
+          - .github/scripts/transition-sdlc-label.sh
+  - id: 5
+    name: Update Cleanup Workflow
+    goal: Update on-issue-closed.yml to handle new label set
+    tasks:
+      - id: TASK-5-1
+        description: Update cleanup trigger condition to check for any sdlc:* label
+        acceptance: Cleanup runs for issues with any SDLC phase label
+        files:
+          - .github/workflows/on-issue-closed.yml
+      - id: TASK-5-2
+        description: Remove all SDLC labels on issue close
+        acceptance: Closed SDLC issues have phase labels removed
+        files:
+          - .github/workflows/on-issue-closed.yml
+  - id: 6
+    name: Update Contract Verification Workflow
+    goal: Update on-pull-request-contract-verify.yml to use new labels
+    tasks:
+      - id: TASK-6-1
+        description: Update PR contract verification trigger to check for sdlc:pr label
+        acceptance: Contract verification triggers on PRs with sdlc:pr label
+        files:
+          - .github/workflows/on-pull-request-contract-verify.yml
+  - id: 7
+    name: Documentation and Testing
+    goal: Update documentation and verify implementation
+    tasks:
+      - id: TASK-7-1
+        description: Update docs/guides/sdlc-pipeline.md with new label documentation
+        acceptance: Documentation describes all SDLC labels and their management
+        files:
+          - docs/guides/sdlc-pipeline.md
+      - id: TASK-7-2
+        description: Update any references to egg-sdlc in other documentation
+        acceptance: No stale references to egg-sdlc remain
+        files:
+          - docs/guides/sdlc-pipeline.md
+          - CLAUDE.md
+      - id: TASK-7-3
+        description: Add integration test for label transitions
+        acceptance: Test verifies labels transition correctly through phase changes
+        files:
+          - integration_tests/sdlc/test_label_transitions.py
+```
+
+---
+
+## Phase Approval
+
+### Ready for Review
+
+<!-- egg-phase-approval -->
+- [ ] Approve and advance to implement phase
+
+---
+
+*Authored-by: egg*
diff --git a/.egg/schemas/contract.schema.json b/.egg/schemas/contract.schema.json
index 8dfc8be828..a344338724 100644
--- a/.egg/schemas/contract.schema.json
+++ b/.egg/schemas/contract.schema.json
@@ -70,7 +70,7 @@
     },
     "workflow_owner": {
       "type": ["string", "null"],
-      "description": "GitHub username of the user who initiated the SDLC workflow (added the egg-sdlc label)",
+      "description": "GitHub username of the user who initiated the SDLC workflow (added the sdlc:refine label)",
       "default": null
     },
     "audit_log": {
diff --git a/.github/scripts/setup-sdlc-labels.sh b/.github/scripts/setup-sdlc-labels.sh
new file mode 100755
index 0000000000..372631913d
--- /dev/null
+++ b/.github/scripts/setup-sdlc-labels.sh
@@ -0,0 +1,83 @@
+#!/usr/bin/env bash
+#
+# Setup SDLC pipeline labels for the repository.
+# This script is idempotent - running it multiple times is safe.
+#
+# Labels created:
+#   sdlc:refine           - Issue is in the refine phase
+#   sdlc:plan             - Issue is in the plan phase
+#   sdlc:implement        - Issue is in the implement phase
+#   sdlc:pr               - Issue has a PR in review
+#   sdlc:awaiting-approval - Waiting for human approval
+#
+# Usage:
+#   ./setup-sdlc-labels.sh [--repo owner/repo]
+#
+# Requires:
+#   - gh CLI authenticated
+#   - GH_TOKEN environment variable or gh auth login
+
+set -euo pipefail
+
+# Default to current repository if not specified
+REPO="${REPO:-}"
+
+# Parse arguments
+while [[ $# -gt 0 ]]; do
+    case "$1" in
+        --repo)
+            REPO="$2"
+            shift 2
+            ;;
+        *)
+            echo "Unknown argument: $1" >&2
+            exit 1
+            ;;
+    esac
+done
+
+# If no repo specified, get from git remote
+if [[ -z "$REPO" ]]; then
+    REPO=$(gh repo view --json nameWithOwner --jq '.nameWithOwner' 2>/dev/null) || {
+        echo "Error: Could not determine repository. Use --repo owner/repo" >&2
+        exit 1
+    }
+fi
+
+echo "Setting up SDLC labels for repository: ${REPO}"
+
+# Define labels: name|color|description
+LABELS=(
+    "sdlc:refine|0E8A16|SDLC pipeline: refine phase"
+    "sdlc:plan|1D76DB|SDLC pipeline: plan phase"
+    "sdlc:implement|D93F0B|SDLC pipeline: implement phase"
+    "sdlc:pr|5319E7|SDLC pipeline: PR in review"
+    "sdlc:awaiting-approval|FBCA04|SDLC pipeline: waiting for human approval"
+)
+
+for label_spec in "${LABELS[@]}"; do
+    IFS='|' read -r name color description <<< "$label_spec"
+
+    # URL-encode the label name for API paths (: becomes %3A)
+    encoded_name="${name//:/%3A}"
+
+    # Check if label exists
+    if gh api "repos/${REPO}/labels/${encoded_name}" >/dev/null 2>&1; then
+        echo "Updating label: ${name}"
+        gh api "repos/${REPO}/labels/${encoded_name}" \
+            -X PATCH \
+            -f color="${color}" \
+            -f description="${description}" \
+            --silent
+    else
+        echo "Creating label: ${name}"
+        gh api "repos/${REPO}/labels" \
+            -X POST \
+            -f name="${name}" \
+            -f color="${color}" \
+            -f description="${description}" \
+            --silent
+    fi
+done
+
+echo "SDLC labels setup complete"
diff --git a/.github/scripts/transition-sdlc-label.sh b/.github/scripts/transition-sdlc-label.sh
new file mode 100755
index 0000000000..934400fce6
--- /dev/null
+++ b/.github/scripts/transition-sdlc-label.sh
@@ -0,0 +1,165 @@
+#!/usr/bin/env bash
+#
+# Transition SDLC labels atomically on an issue or PR.
+#
+# This script handles label transitions with proper error handling
+# and ensures the target label is applied before removing the source.
+#
+# Usage:
+#   transition-sdlc-label.sh --issue <number> --from <label> --to <label>
+#   transition-sdlc-label.sh --issue <number> --add <label>
+#   transition-sdlc-label.sh --issue <number> --remove <label>
+#
+# Options:
+#   --issue <number>   Issue or PR number (required)
+#   --from <label>     Label to remove (used with --to)
+#   --to <label>       Label to add (used with --from or standalone)
+#   --add <label>      Label to add (standalone add operation)
+#   --remove <label>   Label to remove (standalone remove operation)
+#   --repo <owner/repo> Repository (optional, defaults to current)
+#
+# Examples:
+#   # Transition from refine to plan phase
+#   transition-sdlc-label.sh --issue 123 --from sdlc:refine --to sdlc:plan
+#
+#   # Add awaiting-approval label
+#   transition-sdlc-label.sh --issue 123 --add sdlc:awaiting-approval
+#
+#   # Remove awaiting-approval label
+#   transition-sdlc-label.sh --issue 123 --remove sdlc:awaiting-approval
+
+set -euo pipefail
+
+# Parse arguments
+ISSUE=""
+FROM_LABEL=""
+TO_LABEL=""
+ADD_LABEL=""
+REMOVE_LABEL=""
+REPO="${REPO:-}"
+
+while [[ $# -gt 0 ]]; do
+    case "$1" in
+        --issue)
+            ISSUE="$2"
+            shift 2
+            ;;
+        --from)
+            FROM_LABEL="$2"
+            shift 2
+            ;;
+        --to)
+            TO_LABEL="$2"
+            shift 2
+            ;;
+        --add)
+            ADD_LABEL="$2"
+            shift 2
+            ;;
+        --remove)
+            REMOVE_LABEL="$2"
+            shift 2
+            ;;
+        --repo)
+            REPO="$2"
+            shift 2
+            ;;
+        *)
+            echo "Unknown argument: $1" >&2
+            exit 1
+            ;;
+    esac
+done
+
+# Validate arguments
+if [[ -z "$ISSUE" ]]; then
+    echo "Error: --issue is required" >&2
+    exit 1
+fi
+
+# Validate issue number is numeric
+if ! [[ "$ISSUE" =~ ^[0-9]+$ ]]; then
+    echo "Error: Invalid issue number: ${ISSUE}" >&2
+    exit 1
+fi
+
+# If no repo specified, get from git remote
+if [[ -z "$REPO" ]]; then
+    REPO=$(gh repo view --json nameWithOwner --jq '.nameWithOwner' 2>/dev/null) || {
+        echo "Error: Could not determine repository. Use --repo owner/repo" >&2
+        exit 1
+    }
+fi
+
+# Validate label names (defense-in-depth)
+validate_label() {
+    local label="$1"
+    # Labels should only contain alphanumeric, colon, hyphen, space
+    if ! [[ "$label" =~ ^[a-zA-Z0-9:\ -]+$ ]]; then
+        echo "Error: Invalid label name: ${label}" >&2
+        exit 1
+    fi
+}
+
+# URL-encode a label name for API paths
+url_encode_label() {
+    local label="$1"
+    # Simple encoding for common characters in labels
+    echo "$label" | sed 's/:/%3A/g; s/ /%20/g'
+}
+
+# Add a label to an issue
+add_label() {
+    local label="$1"
+    validate_label "$label"
+
+    echo "Adding label '${label}' to issue #${ISSUE}"
+    if ! gh api "repos/${REPO}/issues/${ISSUE}/labels" \
+        -X POST \
+        -f "labels[]=${label}" \
+        --silent 2>/dev/null; then
+        echo "Warning: Failed to add label '${label}' (may already exist or label not found)" >&2
+        return 1
+    fi
+    return 0
+}
+
+# Remove a label from an issue
+remove_label() {
+    local label="$1"
+    validate_label "$label"
+
+    local encoded_label
+    encoded_label=$(url_encode_label "$label")
+
+    echo "Removing label '${label}' from issue #${ISSUE}"
+    if ! gh api "repos/${REPO}/issues/${ISSUE}/labels/${encoded_label}" \
+        -X DELETE \
+        --silent 2>/dev/null; then
+        echo "Warning: Failed to remove label '${label}' (may not exist)" >&2
+        return 1
+    fi
+    return 0
+}
+
+# Execute operations based on arguments
+if [[ -n "$FROM_LABEL" ]] && [[ -n "$TO_LABEL" ]]; then
+    # Transition: add new label first, then remove old
+    add_label "$TO_LABEL" || true
+    remove_label "$FROM_LABEL" || true
+    echo "Transitioned from '${FROM_LABEL}' to '${TO_LABEL}'"
+elif [[ -n "$TO_LABEL" ]]; then
+    # Just add the target label
+    add_label "$TO_LABEL"
+elif [[ -n "$ADD_LABEL" ]]; then
+    # Standalone add
+    add_label "$ADD_LABEL"
+elif [[ -n "$REMOVE_LABEL" ]]; then
+    # Standalone remove
+    remove_label "$REMOVE_LABEL"
+else
+    echo "Error: No operation specified. Use --from/--to, --add, or --remove" >&2
+    exit 1
+fi
+
+echo "Label transition complete"
diff --git a/.github/workflows/on-issue-closed.yml b/.github/workflows/on-issue-closed.yml
index 60f87559ee..22101adf83 100644
--- a/.github/workflows/on-issue-closed.yml
+++ b/.github/workflows/on-issue-closed.yml
@@ -75,13 +75,17 @@ jobs:
     name: Cleanup SDLC state
     needs: resolve-inputs
     runs-on: ubuntu-latest
-    # Only run for issues with the sdlc label, or workflow_call
+    # Only run for issues with any SDLC phase label, or workflow_call
     if: >-
       always() &&
       needs.resolve-inputs.result == 'success' &&
       (
         github.event_name == 'workflow_call' ||
-        contains(github.event.issue.labels.*.name, needs.resolve-inputs.outputs.sdlc_label)
+        contains(github.event.issue.labels.*.name, 'sdlc:refine') ||
+        contains(github.event.issue.labels.*.name, 'sdlc:plan') ||
+        contains(github.event.issue.labels.*.name, 'sdlc:implement') ||
+        contains(github.event.issue.labels.*.name, 'sdlc:pr') ||
+        contains(github.event.issue.labels.*.name, 'sdlc:awaiting-approval')
       )
 
     env:
@@ -222,6 +226,34 @@ jobs:
             echo "error=Failed to delete branch: ${ERROR_OUTPUT}" >> "$GITHUB_OUTPUT"
           fi
 
+      - name: Remove SDLC labels
+        id: remove-labels
+        env:
+          GH_TOKEN: ${{ steps.bot-token.outputs.token }}
+        run: |
+          set -euo pipefail
+
+          REMOVED_LABELS=""
+
+          # Remove all SDLC phase and status labels
+          for label in "sdlc:refine" "sdlc:plan" "sdlc:implement" "sdlc:pr" "sdlc:awaiting-approval"; do
+            encoded_label="${label//:/%3A}"
+            if gh api "repos/${{ github.repository }}/issues/${ISSUE_NUMBER}/labels/${encoded_label}" \
+                -X DELETE --silent 2>/dev/null; then
+              REMOVED_LABELS="${REMOVED_LABELS}${label}, "
+            fi
+          done
+
+          if [[ -n "$REMOVED_LABELS" ]]; then
+            # Remove trailing comma and space
+            REMOVED_LABELS="${REMOVED_LABELS%, }"
+            echo "labels_removed=${REMOVED_LABELS}" >> "$GITHUB_OUTPUT"
+            echo "Removed labels: ${REMOVED_LABELS}"
+          else
+            echo "labels_removed=" >> "$GITHUB_OUTPUT"
+            echo "No SDLC labels to remove"
+          fi
+
       - name: Post cleanup summary comment
         env:
           GH_TOKEN: ${{ steps.bot-token.outputs.token }}
@@ -233,6 +265,7 @@ jobs:
           SKIP_REASON: ${{ steps.delete-branch.outputs.skip_reason }}
           CANCEL_ERRORS: ${{ steps.cancel-workflows.outputs.errors }}
           DELETE_ERROR: ${{ steps.delete-branch.outputs.error }}
+          LABELS_REMOVED: ${{ steps.remove-labels.outputs.labels_removed }}
         run: |
           set -euo pipefail
 
@@ -257,6 +290,11 @@ jobs:
             SUMMARY="${SUMMARY}- Branch deletion skipped"$'\n'
           fi
 
+          # Labels removed status
+          if [[ -n "${LABELS_REMOVED:-}" ]]; then
+            SUMMARY="${SUMMARY}- Removed SDLC labels: ${LABELS_REMOVED}"$'\n'
+          fi
+
           # Report any errors
           if [[ -n "${CANCEL_ERRORS:-}" ]] || [[ -n "${DELETE_ERROR:-}" ]]; then
             SUMMARY="${SUMMARY}"$'\n'"**Warnings:**"$'\n'
diff --git a/.github/workflows/on-pull-request-contract-verify.yml b/.github/workflows/on-pull-request-contract-verify.yml
index 3ca1340bdd..947b203544 100644
--- a/.github/workflows/on-pull-request-contract-verify.yml
+++ b/.github/workflows/on-pull-request-contract-verify.yml
@@ -1,6 +1,6 @@
 name: "egg: Contract Verification"
 
-# Trigger on PRs with the egg-sdlc label
+# Trigger on PRs with the sdlc:pr label
 # This workflow verifies that implementation matches the SDLC contract
 on:
   pull_request:
@@ -27,7 +27,7 @@ jobs:
           app-id: ${{ secrets.BOT_APP_ID }}
           private-key: ${{ secrets.BOT_APP_PRIVATE_KEY }}
 
-      - name: Check for egg-sdlc label and extract issue number
+      - name: Check for sdlc:pr label and extract issue number
         id: check
         env:
           GH_TOKEN: ${{ steps.bot-token.outputs.token }}
@@ -39,13 +39,13 @@ jobs:
           if [[ "${{ github.event_name }}" == "workflow_dispatch" ]]; then
             echo "run=true" >> "$GITHUB_OUTPUT"
           else
-            # Check if PR has egg-sdlc label
+            # Check if PR has sdlc:pr label
             labels=$(gh api "repos/${{ github.repository }}/pulls/${PR_NUMBER}" --jq '.labels[].name')
-            if echo "$labels" | grep -q "^egg-sdlc$"; then
-              echo "PR has egg-sdlc label, running contract verification"
+            if echo "$labels" | grep -q "^sdlc:pr$"; then
+              echo "PR has sdlc:pr label, running contract verification"
               echo "run=true" >> "$GITHUB_OUTPUT"
             else
-              echo "PR does not have egg-sdlc label, skipping"
+              echo "PR does not have sdlc:pr label, skipping"
               echo "run=false" >> "$GITHUB_OUTPUT"
               exit 0
             fi
diff --git a/.github/workflows/sdlc-hitl.yml b/.github/workflows/sdlc-hitl.yml
index ea74fb7518..97e9fe1d89 100644
--- a/.github/workflows/sdlc-hitl.yml
+++ b/.github/workflows/sdlc-hitl.yml
@@ -435,8 +435,11 @@ jobs:
 
             if [[ -n "$NEXT_PHASE" ]]; then
               echo "Advancing to ${NEXT_PHASE} phase"
-              echo "next_phase=${NEXT_PHASE}" >> "$GITHUB_OUTPUT"
-              echo "should_advance=true" >> "$GITHUB_OUTPUT"
+              {
+                echo "next_phase=${NEXT_PHASE}"
+                echo "previous_phase=${CURRENT_PHASE}"
+                echo "should_advance=true"
+              } >> "$GITHUB_OUTPUT"
             else
               echo "should_advance=false" >> "$GITHUB_OUTPUT"
             fi
@@ -485,6 +488,27 @@ jobs:
           export JQ_FILTER=".current_phase = \"${NEXT_PHASE}\""
           .github/scripts/push-contract-update.sh
 
+      # Transition SDLC labels when all decisions resolved
+      - name: Transition SDLC labels on decision resolution
+        if: steps.advance.outputs.should_advance == 'true'
+        env:
+          GH_TOKEN: ${{ steps.bot-token.outputs.token }}
+          NEXT_PHASE: ${{ steps.advance.outputs.next_phase }}
+          PREVIOUS_PHASE: ${{ steps.advance.outputs.previous_phase }}
+        run: |
+          set -euo pipefail
+
+          # Use transition script for label changes
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --from "sdlc:${PREVIOUS_PHASE}" \
+            --to "sdlc:${NEXT_PHASE}"
+
+          # Remove sdlc:awaiting-approval label
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --remove "sdlc:awaiting-approval"
+
       # Minimize previous HITL status comments to reduce clutter
       - name: Minimize previous HITL comments
         if: steps.update.outputs.contract_updated == 'true'
@@ -773,6 +797,29 @@ jobs:
           export JQ_SCRIPT_PATH="/tmp/reapply-approve-phase.sh"
           .github/scripts/push-contract-update.sh
 
+      # Transition SDLC labels on phase approval
+      - name: Transition SDLC labels
+        if: steps.approve.outputs.approved == 'true'
+        env:
+          GH_TOKEN: ${{ steps.bot-token.outputs.token }}
+          NEXT_PHASE: ${{ steps.approve.outputs.next_phase }}
+          PREVIOUS_PHASE: ${{ steps.approve.outputs.previous_phase }}
+        run: |
+          set -euo pipefail
+
+          # Use transition script for label changes
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --from "sdlc:${PREVIOUS_PHASE}" \
+            --to "sdlc:${NEXT_PHASE}"
+
+          # Remove sdlc:awaiting-approval label
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --remove "sdlc:awaiting-approval"
+
+          echo "Transitioned labels: sdlc:${PREVIOUS_PHASE} -> sdlc:${NEXT_PHASE}"
+
       # Minimize previous HITL status comments to reduce clutter
       - name: Minimize previous HITL comments
         if: steps.approve.outputs.approved == 'true'
diff --git a/.github/workflows/sdlc-pipeline.yml b/.github/workflows/sdlc-pipeline.yml
index 8990abcbb0..03305750de 100644
--- a/.github/workflows/sdlc-pipeline.yml
+++ b/.github/workflows/sdlc-pipeline.yml
@@ -125,14 +125,14 @@ jobs:
     name: Initialize pipeline
     needs: resolve-inputs
     runs-on: ubuntu-latest
-    # Only trigger on sdlc label, workflow_dispatch, or workflow_call
+    # Only trigger on sdlc:refine label, workflow_dispatch, or workflow_call
     if: >-
       always() &&
       needs.resolve-inputs.result == 'success' &&
       (
         (github.event_name == 'workflow_dispatch') ||
         (github.event_name == 'workflow_call') ||
-        (github.event_name == 'issues' && github.event.label.name == needs.resolve-inputs.outputs.sdlc_label)
+        (github.event_name == 'issues' && github.event.label.name == 'sdlc:refine')
       )
     outputs:
       issue_number: ${{ steps.setup.outputs.issue_number }}
@@ -206,7 +206,7 @@ jobs:
           echo "issue_title=${ISSUE_TITLE}" >> "$GITHUB_OUTPUT"
 
           # Capture workflow owner (the user who triggered the workflow)
-          # This is the user who added the egg-sdlc label or dispatched the workflow
+          # This is the user who added the sdlc:refine label or dispatched the workflow
           WORKFLOW_OWNER="${EVENT_SENDER:-}"
 
           # Validate workflow owner format (defense-in-depth)
@@ -306,6 +306,47 @@ jobs:
             fi
           done
 
+      # Apply the appropriate phase label to the issue
+      - name: Apply phase label
+        env:
+          GH_TOKEN: ${{ steps.bot-token.outputs.token }}
+          ISSUE_NUMBER: ${{ steps.setup.outputs.issue_number }}
+          CURRENT_PHASE: ${{ steps.setup.outputs.current_phase }}
+        run: |
+          set -euo pipefail
+
+          # Map phase to label
+          PHASE_LABEL="sdlc:${CURRENT_PHASE}"
+
+          # Get current labels on the issue
+          CURRENT_LABELS=$(gh api "repos/${{ github.repository }}/issues/${ISSUE_NUMBER}/labels" \
+            --jq '.[].name' 2>/dev/null || echo "")
+
+          # Check if correct label is already present
+          NEEDS_LABEL=true
+          if echo "$CURRENT_LABELS" | grep -qx "$PHASE_LABEL"; then
+            echo "Correct phase label ${PHASE_LABEL} already present"
+            NEEDS_LABEL=false
+          fi
+
+          # Remove incorrect phase labels using transition script
+          for label in "sdlc:refine" "sdlc:plan" "sdlc:implement" "sdlc:pr"; do
+            if [[ "$label" != "$PHASE_LABEL" ]] && echo "$CURRENT_LABELS" | grep -qx "$label"; then
+              .github/scripts/transition-sdlc-label.sh \
+                --issue "${ISSUE_NUMBER}" \
+                --remove "$label"
+            fi
+          done
+
+          # Add the correct phase label if needed
+          if [[ "$NEEDS_LABEL" == "true" ]]; then
+            .github/scripts/transition-sdlc-label.sh \
+              --issue "${ISSUE_NUMBER}" \
+              --add "$PHASE_LABEL"
+          fi
+
+          echo "Applied phase label: ${PHASE_LABEL}"
+
       # Minimize previous pipeline status comments to reduce clutter
       - name: Minimize previous pipeline comments
         if: steps.setup.outputs.contract_exists == 'false'
@@ -667,11 +708,17 @@ jobs:
           echo "Created draft PR #${PR_NUMBER}"
           echo "pr_number=${PR_NUMBER}" >> "$GITHUB_OUTPUT"
 
-          # Add egg-sdlc label to trigger contract verification workflow
-          gh pr edit "${PR_NUMBER}" --add-label "egg-sdlc" || {
-            echo "::warning::Failed to add egg-sdlc label (label may not exist)"
+          # Add sdlc:pr label to trigger contract verification workflow
+          gh pr edit "${PR_NUMBER}" --add-label "sdlc:pr" || {
+            echo "::warning::Failed to add sdlc:pr label (label may not exist)"
           }
 
+          # Transition issue from sdlc:implement to sdlc:pr using transition script
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --from "sdlc:implement" \
+            --to "sdlc:pr"
+
       # Minimize previous pipeline status comments to reduce clutter
       - name: Minimize previous pipeline comments
         if: always()
@@ -1683,6 +1730,13 @@ jobs:
             gh issue comment "${ISSUE_NUMBER}" --repo "${{ github.repository }}" --body-file /tmp/fallback-analysis.md
           fi
 
+          # Add sdlc:awaiting-approval label to indicate human review is needed
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --add "sdlc:awaiting-approval" || {
+              echo "Warning: Failed to add sdlc:awaiting-approval label"
+            }
+
   # ============================================================
   # Refine Re-dispatch: Re-run refine if review failed
   # ============================================================
@@ -1793,6 +1847,11 @@ jobs:
 
           gh issue comment "${ISSUE_NUMBER}" --repo "${{ github.repository }}" --body-file /tmp/escalation.md
 
+          # Add sdlc:awaiting-approval label for escalation
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --add "sdlc:awaiting-approval" || true
+
       - name: Re-dispatch refine phase
         if: steps.check-circuit-breaker.outputs.skip != 'true'
         env:
@@ -2403,6 +2462,13 @@ jobs:
             gh issue comment "${ISSUE_NUMBER}" --repo "${{ github.repository }}" --body-file /tmp/fallback-plan.md
           fi
 
+          # Add sdlc:awaiting-approval label to indicate human review is needed
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --add "sdlc:awaiting-approval" || {
+              echo "Warning: Failed to add sdlc:awaiting-approval label"
+            }
+
   # ============================================================
   # Plan Re-dispatch: Re-run plan if review failed
   # ============================================================
@@ -2513,6 +2579,11 @@ jobs:
 
           gh issue comment "${ISSUE_NUMBER}" --repo "${{ github.repository }}" --body-file /tmp/escalation.md
 
+          # Add sdlc:awaiting-approval label for escalation
+          .github/scripts/transition-sdlc-label.sh \
+            --issue "${ISSUE_NUMBER}" \
+            --add "sdlc:awaiting-approval" || true
+
       - name: Re-dispatch plan phase
         if: steps.check-circuit-breaker.outputs.skip != 'true'
         env:
diff --git a/README.md b/README.md
index fbcd9a498f..0650f80a6c 100644
--- a/README.md
+++ b/README.md
@@ -118,7 +118,7 @@ egg includes GitHub Actions workflows that run inside the sandbox:
 
 ```bash
 # Via label (recommended)
-gh issue edit 123 --add-label "egg-sdlc"
+gh issue edit 123 --add-label "sdlc:refine"
 
 # Via workflow dispatch
 gh workflow run sdlc-pipeline.yml -f issue_number=123 -f starting_phase=refine
@@ -141,7 +141,7 @@ A 30-second debounce prevents accidental clicks.
 ### Using the SDLC Pipeline (GitHub Actions)
 
 1. Install the egg GitHub App or configure workflows in your repository
-2. Add the `egg-sdlc` label to an issue
+2. Add the `sdlc:refine` label to an issue
 3. The pipeline begins: refine → plan → implement → ready for merge
 4. Review and merge the PR via GitHub UI
 
diff --git a/docs/guides/sdlc-pipeline.md b/docs/guides/sdlc-pipeline.md
index 82af0202e7..036cbe7abb 100644
--- a/docs/guides/sdlc-pipeline.md
+++ b/docs/guides/sdlc-pipeline.md
@@ -426,11 +426,48 @@ The PR metadata (title and description) from the plan is stored in the contract'
 | `.egg/schemas/contract.schema.json` | JSON schema definition |
 | `.egg/phase-permissions.json` | Phase operation restrictions |
 
+## SDLC Labels
+
+The pipeline uses GitHub labels to track issue state and enable filtering:
+
+### Phase Labels
+
+| Label | Description | Applied When |
+|-------|-------------|--------------|
+| `sdlc:refine` | Issue is in refine phase | Pipeline initialized or workflow triggered |
+| `sdlc:plan` | Issue is in plan phase | Refine phase approved |
+| `sdlc:implement` | Issue is in implement phase | Plan phase approved |
+| `sdlc:pr` | Issue has a PR in review | Draft PR created |
+
+### Status Labels
+
+| Label | Description | Applied When |
+|-------|-------------|--------------|
+| `sdlc:awaiting-approval` | Human approval required | Phase completion or escalation |
+
+### Label Lifecycle
+
+1. **Pipeline start**: `sdlc:refine` is added (and triggers the pipeline)
+2. **Phase transitions**: Old phase label removed, new phase label added
+3. **Awaiting approval**: `sdlc:awaiting-approval` added when human review needed
+4. **On approval**: `sdlc:awaiting-approval` removed, phase label transitioned
+5. **Issue closed**: All SDLC labels automatically removed by cleanup workflow
+
+### Label Setup
+
+To set up SDLC labels in a repository:
+
+```bash
+.github/scripts/setup-sdlc-labels.sh --repo owner/repo
+```
+
+This script is idempotent and safe to run multiple times.
+
 ### Triggering the Pipeline
 
-**Via label**:
+**Via label** (recommended):
 ```bash
-gh issue edit 123 --add-label "egg-sdlc"
+gh issue edit 123 --add-label "sdlc:refine"
 ```
 
 **Via workflow dispatch**:
diff --git a/integration_tests/sdlc/test_label_transitions.py b/integration_tests/sdlc/test_label_transitions.py
new file mode 100644
index 0000000000..b9178aec87
--- /dev/null
+++ b/integration_tests/sdlc/test_label_transitions.py
@@ -0,0 +1,190 @@
+"""Integration tests for SDLC label transitions.
+
+Tests the label management throughout the SDLC pipeline phases:
+1. Phase labels are applied correctly during init
+2. Labels transition on phase approval
+3. awaiting-approval label is managed correctly
+4. Cleanup removes all SDLC labels on issue close
+"""
+
+from pathlib import Path
+
+import pytest
+
+# SDLC labels used by the pipeline
+SDLC_LABELS = [
+    "sdlc:refine",
+    "sdlc:plan",
+    "sdlc:implement",
+    "sdlc:pr",
+    "sdlc:awaiting-approval",
+]
+
+
+class TestLabelSetupScript:
+    """Tests for the setup-sdlc-labels.sh script."""
+
+    @pytest.fixture
+    def script_path(self):
+        """Get the path to the label setup script."""
+        return Path(__file__).parents[2] / ".github" / "scripts" / "setup-sdlc-labels.sh"
+
+    def test_script_exists_and_executable(self, script_path):
+        """Verify the setup script exists and is executable."""
+        assert script_path.exists(), f"Script not found at {script_path}"
+        # Check if executable bit is set
+        assert script_path.stat().st_mode & 0o111, "Script is not executable"
+
+    def test_script_defines_all_labels(self, script_path):
+        """Verify script defines all required SDLC labels."""
+        content = script_path.read_text()
+
+        for label in SDLC_LABELS:
+            assert label in content, f"Label {label} not defined in setup script"
+
+
+class TestLabelTransitionScript:
+    """Tests for the transition-sdlc-label.sh script."""
+
+    @pytest.fixture
+    def script_path(self):
+        """Get the path to the label transition script."""
+        return Path(__file__).parents[2] / ".github" / "scripts" / "transition-sdlc-label.sh"
+
+    def test_script_exists_and_executable(self, script_path):
+        """Verify the transition script exists and is executable."""
+        assert script_path.exists(), f"Script not found at {script_path}"
+        assert script_path.stat().st_mode & 0o111, "Script is not executable"
+
+    def test_script_validates_arguments(self, script_path):
+        """Verify script validates required arguments."""
+        content = script_path.read_text()
+
+        # Check for argument validation
+        assert "--issue" in content, "Script should check for --issue argument"
+        assert "Error:" in content, "Script should have error messages"
+
+
+class TestLabelTransitionLogic:
+    """Tests for label transition logic in workflows."""
+
+    def test_phase_to_label_mapping(self):
+        """Verify phases map to correct labels."""
+        phase_label_map = {
+            "refine": "sdlc:refine",
+            "plan": "sdlc:plan",
+            "implement": "sdlc:implement",
+            "pr": "sdlc:pr",
+        }
+
+        for phase, expected_label in phase_label_map.items():
+            assert expected_label in SDLC_LABELS, (
+                f"Label {expected_label} for phase {phase} is valid"
+            )
+
+    def test_label_transitions_are_mutually_exclusive(self):
+        """Verify phase labels are mutually exclusive."""
+        phase_labels = ["sdlc:refine", "sdlc:plan", "sdlc:implement", "sdlc:pr"]
+
+        # All phase labels should be in the SDLC labels set
+        for label in phase_labels:
+            assert label in SDLC_LABELS
+
+        # sdlc:awaiting-approval is a status label, not a phase label
+        assert "sdlc:awaiting-approval" in SDLC_LABELS
+        assert "sdlc:awaiting-approval" not in phase_labels
+
+
+class TestWorkflowLabelIntegration:
+    """Tests for label handling in workflow files."""
+
+    @pytest.fixture
+    def workflows_dir(self):
+        """Get the path to the workflows directory."""
+        return Path(__file__).parents[2] / ".github" / "workflows"
+
+    def test_pipeline_triggers_on_sdlc_refine(self, workflows_dir):
+        """Verify pipeline triggers on sdlc:refine label."""
+        pipeline_path = workflows_dir / "sdlc-pipeline.yml"
+        content = pipeline_path.read_text()
+
+        assert "sdlc:refine" in content, "Pipeline should trigger on sdlc:refine"
+        # The old egg-sdlc trigger should be removed from the trigger condition
+        # but may still be referenced in comments/documentation
+
+    def test_cleanup_handles_all_sdlc_labels(self, workflows_dir):
+        """Verify cleanup workflow handles all SDLC labels."""
+        cleanup_path = workflows_dir / "on-issue-closed.yml"
+        content = cleanup_path.read_text()
+
+        # Should check for any SDLC phase label
+        for label in ["sdlc:refine", "sdlc:plan", "sdlc:implement", "sdlc:pr"]:
+            assert label in content, f"Cleanup should check for {label}"
+
+    def test_contract_verify_uses_sdlc_pr(self, workflows_dir):
+        """Verify contract verification triggers on sdlc:pr label."""
+        verify_path = workflows_dir / "on-pull-request-contract-verify.yml"
+        content = verify_path.read_text()
+
+        assert "sdlc:pr" in content, "Contract verification should use sdlc:pr"
+
+    def test_hitl_handles_label_transitions(self, workflows_dir):
+        """Verify HITL workflow handles label transitions."""
+        hitl_path = workflows_dir / "sdlc-hitl.yml"
+        content = hitl_path.read_text()
+
+        # Should have label transition logic
+        assert "Transition SDLC labels" in content, "HITL should have label transition step"
+        assert "sdlc:awaiting-approval" in content, "HITL should manage awaiting-approval label"
+
+
+class TestLabelNameConventions:
+    """Tests for label naming conventions."""
+
+    def test_all_labels_have_sdlc_prefix(self):
+        """Verify all SDLC labels use the sdlc: prefix."""
+        for label in SDLC_LABELS:
+            assert label.startswith("sdlc:"), f"Label {label} should have sdlc: prefix"
+
+    def test_labels_use_lowercase(self):
+        """Verify all labels are lowercase."""
+        for label in SDLC_LABELS:
+            assert label == label.lower(), f"Label {label} should be lowercase"
+
+    def test_labels_have_no_spaces(self):
+        """Verify labels have no spaces."""
+        for label in SDLC_LABELS:
+            assert " " not in label, f"Label {label} should not contain spaces"
+
+
+class TestLabelColors:
+    """Tests for label color consistency in setup script."""
+
+    @pytest.fixture
+    def script_path(self):
+        """Get the path to the label setup script."""
+        return Path(__file__).parents[2] / ".github" / "scripts" / "setup-sdlc-labels.sh"
+
+    def test_labels_have_distinct_colors(self, script_path):
+        """Verify each phase label has a distinct color."""
+        content = script_path.read_text()
+
+        # Extract color codes from the script
+        # Format: "label|color|description"
+        import re
+
+        colors = re.findall(r"\|([0-9A-Fa-f]{6})\|", content)
+
+        # Phase labels should have distinct colors
+        phase_colors = colors[:4]  # First 4 are phase labels
+        assert len(phase_colors) == len(set(phase_colors)), (
+            "Phase labels should have distinct colors"
+        )
+
+    def test_awaiting_approval_uses_warning_color(self, script_path):
+        """Verify awaiting-approval uses a visible warning-like color."""
+        content = script_path.read_text()
+
+        # Yellow-ish colors are typically used for warnings
+        # FBCA04 is GitHub's yellow
+        assert "FBCA04" in content, "awaiting-approval should use yellow/warning color"