Shirley McGrath, fired in June, sued for wrongful dismissal and was seeking lost wages.
The two parties have since resolved the matter, said City Cabs lawyer Louis Walsh in territorial court, Monday.
But McGrath told the court she decided to withdraw the lawsuit because she does not have the resources to continue fighting City Cabs.
She also said her lawyer has moved out of town, and her primary witness is now reluctant to testify. "For understandable reasons," said McGrath.
"Any attempt to subpoena her would only antagonize her," she said.
McGrath did not return a phone call from Yellowknifer.