A key area of focus in the economic reform process and the design of a favorable business environment is labor market legislation. Montenegro has obviously failed in this area. After nearly 13 years since the beginning of the transition process, or five years since the beginning of Economic reforms, the new Labor Law was passed in July 2003. This is not the only weakness of the labor market reform; more importantly is that the new law did not actually bring any significant changes that would create a more flexible labor market. Since the General Collective Agreement, which is an important part of labor legislature in Montenegro, must be adjusted to the new Labor Law, the Union has proposed a new Collective agreement. In this paper we will discuss the new Labor Law as well as the adjusted Collective Agreement that was proposed by the union.