The economic and social situation at the beginning of the 21st century is bringing new challenges also to labor - management relations all over the world. During the transition period, Slovenia was facing hard times in striving to build completely new market-oriented economic society. Because of the significance of labor-management relations to the new economy and political system, labor-related matters received much attention from the Slovenian economic development policy. Within socialist economic system unemployment actually did not exist, as the system was very protective. Labor relations were administratively regulated and all shortcomings broke out on the eve before the socialism collapsed. Transformation depression was accompanied with decline in economic activity in general and inflation, which both had negative impact on standard of living and employment. The registered unemployment rate was rising up to 14.4 % in 1993. The most critical groups were those having no vocational education, older than 40 and those already being unemployed. The main reasons for employment stagnation and the persistent high registered unemployment rate could be found in economy’s restructure initiated by a transition into market economy (bankruptcies) and the loss of Yugoslav markets (orientation on a more demanding European markets). Many enterprises faced inevitable failure; many workers were dismissed or got a status of being redundant. The problem was moderated with new retirement legislation, which enabled the possibility of early retirement, which consequently lowered the share of elder people employed and contributed to very modest share of part-time employed people. In Slovenia labor costs (taxes and social contributions paid by employees and employers) are the highest in the new EU member states with the exception of Cyprus. If Slovenia wants to boost employment and economic growth, it will have to implement the new labor-relations law and create a more flexible labor market. Considering that competitive advantage and economic growth are often achieved by reducing labor costs (and lower social security of employees) the regulation of labor relations needs very subtle actions. In the paper, we present the development of labor relations in Slovenia through three periods: planned economy, transition and post-transition period, high-lightening the recent trends, the key labor market development problems, as well as bringing forward the key orientations and policies – alleviating critical elements on this field.