Jeff gives examples of the differences between employees and independent contractors. The main distinction is the freedom the worker is given. Independent contractors can choose when, where, and how they do the job. They can work for other customers at the same time as well as hire other contractors to do the job. They have to pay their own taxes and do not get the benefits an employee would. The IRS has a complete list of the differences.
Also mentioned the employee/contractor contracts should have indemnity clauses so they are not sued for their work; confidentiality clauses so company secrets are not spread to the competiton; and non-compete clauses for a specified amount of time.
Give Jeff a call if you know a company working with contractors and having legal questions about it.