The move came in response to concerns expressed by both customers and environmental advocates.
Dell, the world's largest seller of PCs, said it had canceled its contract with Unicor, a branch of the Federal Bureau of Prisons that employs prisoners.
The New York Times said Dell selected two companies to replace Unicor as its primary recycler, Resource Concepts of Dallas and Image Microsystems in Los Angeles and Austin, Texas.
Last week, an environmental group in California released a report criticizing Dell's reliance on prison labor.
The group, the Silicon Valley Toxics Coalition, said in its report that inmates who work at the prison recycling operation were not protected by the Fair Labor Standards Act and were paid from 20 cents to $1.26 an hour.
The report also criticized Unicor for not properly disposing of toxic waste.
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