I agree with you, Karen, that it should be, for the most part, transparent to the client whether we are employees or contractors. In an ideal world, we would treat our clients with the same level of professionalism.
That said, it really is a very different legal relationship. I come at it from the tax side as a former tax accountant so I can’t and won’t opine legally. What I do know – and I have two clients who are lawyers and just gave the “employee versus contractor” talk to MBA students – is that the law here is getting more strict and not less. A company engaging “contractors” when they really should be “employees” can get in major trouble.