Technical director Luke Dowling met the former Wolfsburg manager on Monday, and there have since been further talks with the 53-year-old.
Labbadia isn't the only coach under consideration, and it's believed the Baggies are also assessing others who have subsequently become available since the season finished.
Their initial four-man shortlist has evolved due to a number of fresh options emerging.
But Labbadia, who has 16 years of managerial experience under his belt, is the current front-runner for the position, having been spoken to for a second time this week.
Reports in Germany claim he has turned down Hamburg, who offered to employ him for a third time.
It's been more than two weeks since the Baggies lost to Aston Villa in the Championship play-off semi-final, ending Albion's season.
Dowling has been leading the search over the past fortnight but will make a recommendation to chief executive Mark Jenkins and owner Guochuan Lai before the Baggies make a joint-decision on the appointment.
Lincoln City’s Danny Cowley has been under consideration, but it’s believed his demands may not be in-keeping with Albion’s structural model.
Despite being a highly thought-of young manager, there were also concerns that he is yet to work higher than League Two.
Michael Appleton, who came in to assist Jimmy Shan towards the end of last season, is not under consideration despite knowing the club well and wanting to get back into management.
However, Swansea City have spoken to Appleton about their vacant head coach role in the wake of Graham Potter's move to Brighton.
Chris Hughton, who was sacked by the Seagulls, was on Albion’s original four-man shortlist and is still under consideration, but is expected to want some time off.
The Baggies are keen to appoint a new head coach in the next fortnight in order to give him time to prepare for pre-season.
Although Albion’s players are currently on holiday, the squad returns to training in three and a half weeks’ time on Monday, June 24.
Meanwhile, Norwich City have reportedly joined the race for Dwight Gayle's signature.
Gayle scored 24 goals on loan at The Hawthorns last season, but will not be returning to Albion due to his Premier League wage packet. Fulham are also interested in Gayle.