The definitive statement on whether they are employees or contractors would have to be settled by a court, but in terms of how the UFC would argue that they're contractors the following points would most likely be raised...
-The contract is for a set number of fights, not an hourly or weekly wage
-They are not required to be on site or company premises except in relation to specific fights
-They provide their own training and conditioning. They are free to train at whatever gym they desire, with whatever trainers they desire, at whatever pace they desire, at any time they desire
-Gloves and shorts are workplace attire and safety equipment. The gloves are mandated by the state to protect the fighters. They can still strike and submit someone regardless of the gloves. And requiring Reebok shorts is no different than requiring that a Microsoft contractor wear a microsoft Polo Shirt at an official event
-They are free to execute their service (the fight) in whatever manner they desire. They can strike, grapple, or simply run around the cage for 3 minutes or 25 minutes entirely based upon their own choices
-They are free to decline specific jobs (fights) whenever they wish. The contract does not require they fight specific people, only that they complete a specific number of fights within a fixed time period
-They are free to pursue outside sponsors as they wish, as well as hold other jobs as they wish as long as it does not directly compete with the UFC
-They are free to leave the UFC whenever they wish as long as they fulfill their contract of services. And they can even choose to not complete their contract as long as they do not sign to fight with a competing organization
-They are free to spend whatever monies they wish for whatever purposes they wish. They can have 1 trainer, 10 trainers, or 100 trainers if they so desire. They can spend $10 or $100,000 to prepare themselves for their fights. They can spend whatever monies they wish on whatever equipment they wish for the purposes of training, whether that's using Nike apparel in their training gyms, or wear speedo's when they run as long as it's not during televised promotional filming, media requirements or official events
-They are not required to report their progress in terms of training or fighting to the UFC. They don't have to provide update reports or fulfill any reporting requirements to the UFC.
It's a pretty solid argument when you think about it.