In 2003 the UK government set an objective that in ten years' time Britain's minority ethnic groups should not face disproportionate barriers in the labour market. A key ‘barrier’ is discrimination by employers. This article examines one potential way forward: the use of contract compliance. First, the article presents findings from the authors' study of an innovative use of contract compliance by a group of local authorities in the West Midlands. If contract compliance can be made to work and New Labour is committed to addressing racial inequality in employment, this suggests that contract compliance is an approach that the government should be seeking to develop. The second part of the article therefore considers New Labour's stance on contract compliance, which can be seen to be highly ambiguous. It is argued that if contract compliance is located within the broader context of New Labour policy development, what is apparent is that the professed aspiration for social change is compromised by a dominant commitment to the maintenance of neo-liberal economic policies. The conclusion is that it is likely that only limited progress will be made in achieving racial equality in employment.