Hi, I am working on employer A on L1B visa and now applied for h1b and waiting for a approval notice. Next week my employer A is planning to cancel the l1b. But I have valid I-94 until next year. So is it legal to stay with I-94 even though l1b is cancelled..

Yes if your change of status to H-1B was timely filed and it was filed as a COS and not for consular notification. Please note that you are not staying in the US with authorization based on the issued L-1B I-94, but as an applicant for a change of status to H-1B.

You cannot work as an H-1B (no H portability) until you have the approval in hand as you were not in H-1B status previously.

Thanks. Have another question - so in case, for any reason COS is requested for RFE/denied then do I have to leave this country immediately?

They give you a "reasonable" amount of time, but the exact time is not specified in the regs. You are still authorized to stay during the RFE period, but cannot work.

FYI. My h1b petition is denied due. The reason for it is "providing the end client letter."

Sorry to hear about the H-1B COS denial. Have you discussed with the attorney the chances on an appeal? If you re-apply now, you will need to leave the US to apply for the visa after it is approved.