For all we know, some attorney general was ginning up to collectively punish businesses that use contractors because recent press had made such businesses polit

For all we know, some attorney general was ginning up to collectively punish businesses that use contractors because recent press had made such businesses politically attractive targets. And your client was just trying to stay out of the crosshairs. You can be compliant with the spirit of the law and still be targeted by some ideologue using the law as a cudgel.