After working for 5 years as a FT salaried employee I was notified that my position was being eliminated due to organizational restructuring. Before my termination date, I was offered part-time work as an independent contractor to continue serving 2 of the clients I was then working with, starting after my status as a FT employee ended. Is this legal?

Sure they can... that's why its called AT-WILL employment. THEY own the business.