Colloquially, when people say "large government" they refer to the level and breadth of regulation, aka restrictions on private actors. This restricts private actors, so colloquially we say it made the government larger.
This reduces government regulations on contracts, not increases, a wider range of private contracts are allowed now hence this results in "smaller government".
If you mean this makes private corporations gain leverage over workers, sure, but that isn't what "large government" means.
There's two private actors here: private companies, and private workers. This explicitly restricts the mobility and freedom of private workers, and actively undermines the free labor market.
IMO this does fit the bill of "large government", as it's explicitly done to manipulate and pollute the free market.