Blackburn have been ordered by a High Court judge to pay £2.25million in compensation to former manager Henning Berg.
Former Rovers defender Berg's spell in charge at Ewood Park was brought to an end 57 days into a three-year deal last December following a run of one win in 10 matches.
The case argued by Blackburn was that managing director Derek Shaw acted without authority from owners Venky's in granting Berg a contract that entitled him to full payment of his agreement in the event of an early dismissal. Venky's preference was a 12-month notice period, but Judge Mark Pelling dismissed the notion that Shaw lacked the authority to finalise the terms of Berg's deal.
He said: "In my judgment it is unarguable to suggest that the managing director of Blackburn does not have implied or usual authority to sign employment contracts on its behalf.
"As I have said it is common ground that Mr Shaw had been actually authorised to negotiate and conclude an employment contract with Mr Berg."
Shaw and fellow director Paul Agnew contended that an October 31 meeting with Berg at a Blackburn hotel was merely a "meet and greet", but the judge concluded that a letter drawn up and signed by Berg and Shaw a day later laid out the terms for the managerial contract.
He said: "The letter of October 31 certainly contains a provision to the effect that the contract would be for a fixed period ending on June 30, 2015."
Blackburn's barrister, Neil Berragan QC, asked for permission for the club to appeal the decision but Judge Pilling dismissed the request.
Berg's time at Blackburn was followed by a similarly brief tenure under Michael Appleton. Caretaker manager Gary Bowyer is now in charge for a second time this season and Saturday's 1-1 draw against Crystal Palace all but secured Rovers' npower Championship status for next term, averting a second consecutive relegation.