This seems inconsistent with what little I know of employment law, or at least the spirit of the law. The difference between an employee and a contractor is mostly about the degree of control the employer exerts. Employees are more heavily controlled and therefore get more protections and benefits.
In a sane world, common practices like forbidding a "contractor" from working with any other company would be more legally risky than letting a contractor participate in an in-office party.
