This is based on Cuneiform documents from 600-500BC.

Slaves could be captured as prisoners of war. They could be born into slavery, there are documents of slave families being sold. There could also be debt slaves. Mesopotamian society was sort of run on a system of usury: there were many short term high interest loans taken out by workers, who would often end up in horrid debt until the king abolished all debts (which he did periodically). In extreme cases, debtors would sell their families and sometimes themselves into slavery.

Manumission could be granted by a document, which the slave would keep as proof of their status. Sometimes, slaves would be granted freedom on the condition that they provide for their former owners in old age.

We don't have many details on the lives of slaves. Most of them probably did housework, some did managerial roles. We aren't exactly sure where they lived. There was no reason for these kinds of things to be written down. It is pretty certain that their status was completely different from our conception of slavery: they weren't physically restrained, they could own property and other slaves.

I suppose I believe it is different from being an employee, because slaves were not allowed to leave (though they often did). I would also point out that the argument your friends are making comes dangerously close to the one that pro slavery southerners used to make -- that slaves were treated better in the south than laborers in the north.

Source: Baker, H D "Degrees of Freedom: Slavery in Mid-First Millennium BC Babylonia" "World Archaeology" 33.1 (2001) 18-26