Create Layer from Selected Features

I have a shapefile that contains 798 points. I am selecting small subsets of those points and using the "select by attributes" tool within the attribute table. After selecting the features that I want I am then creating a layer from the selected features. This process works fine and I have no issues. I then go in and change the symbol and symbol size with no issue. However when I go to label the features for some reason I get all 798 points showing up again when I was working with a layer that was only a small subset of those features that I wanted.

I have had this problem in 10.0, 10.1, and now in 10.2.

Can anyone help me out? Does anyone know why this happens?

Thank you,