In response to new legislation requiring the release of contractors or their conversion to full-time employees, the project manager should prioritize compliance with the law. This may involve using only full-time employees, even if it results in project delays. The focus should be on legal compliance and the ethical treatment of workers, rather than solely on project timelines.
Reference = The answer is based on standard project management practices and the typical response to changes in legislation affecting project staffing. For detailed information, please refer to the CompTIA Project+ Study Guide and other official CompTIA resources.