In a memo to Newsday employees on Thursday, editor John Mancini said that Smith's March 31 column was her last for the Long Island newspaper.
"Liz, who joined Newsday in March 1991, did not exercise her option to extend her contract, which has expired," the memo read. "We subsequently attempted to negotiate a new arrangement with her but could not come to mutually agreeable terms."
Smith contends she always intended to stay with the paper and to exercise that option for two more years.
The earlier negotiation consisted of an offer to cut her salary by 95 percent, which was immediately rejected, and "we were just waiting for them to get serious," Smith told The Associated Press Friday.
Stuart Vincent, a spokesman for Newsday, refused to comment.
Newsday has been facing cost-cutting pressures following a scandal in November involving overstated circulation.
"They're making all their employees pay for their mistakes," Smith says.
Smith claims she missed the deadline because of the disorder at the paper. "I didn't even know who the publisher was, in the middle of that turmoil," she said.
Smith's lawyer, David Blasbend, told The Associated Press that a request for arbitration has been filed with the American Arbitration Association.
"We hope to make them honor the contact," Blasbend said. "We'll give them the column back, but they don't seem to want it back."
He added: "It seems pretty logical that this is about money."