A federal panel of judges granted San Francisco the right on Wednesday to put in place a key part of its universal health care program as legal arguments about the first-in-the-nation plan continue.

The unanimous decision, from a three-judge panel of the United States Court of Appeals for the Ninth Circuit, allows the city to require businesses with more than 20 employees to pay a fee to help cover employees’ health care costs, something city officials say will help about 20,000 people without insurance.

The law, which passed the city’s Board of Supervisors in 2006, had been successfully challenged by a local restaurant trade group, which argued that it would violate a 1974 federal statute that prohibits conflicting local, state and federal benefit plans. That opinion was seconded in late December by Judge Jeffrey S. White of Federal District Court, who suspended the law, which was due to take effect on Jan. 1.

But on Wednesday, Judge William A. Fletcher of the circuit court said that the city had a “strong likelihood” to prevail in the case, and granted a temporary stay of the district court order while the full appeal is heard.

Joined by Judges Alfred T. Goodwin and Stephen Reinhardt, Judge Fletcher wrote that “the balance of hardships tips sharply in favor of the city,” adding “that the public interest would be served by a stay.”

Dennis Herrera, the San Francisco city attorney, said the ruling would greatly strengthen the health plan, which has already signed up nearly 8,000 residents.

“It’s a wonderful ruling, we’re absolutely thrilled,” Mr. Herrera said. “It’s an important victory for the thousands of San Franciscans that will be able to receive health care in coming months.”

Under the law, businesses with more than 20 employees are required to pay a minimum health care contribution of $1.17 to $1.76 an hour for each employee. The fees can go toward a variety of health-care options, including employer-provided insurance, health savings accounts, direct payment of medical bills, or payment in a new city program called Healthy San Francisco.

Some employers, however, say the plan places an undue burden on smaller businesses, many of which are already paying for employee benefits. “It’s expensive, it’s unsustainable and there’s better ways to do it,” said Daniel Scherotter, the incoming president of the Golden Gate Restaurant Association, which filed the suit challenging the law.

Mr. Scherotter, who owns an Italian restaurant in the city, estimates that he already spends $60,000 a year on health insurance, but that the new plan could cost him twice that.

“Everybody seems to know that restaurants are really risky business, but somehow, they’re saying, ‘Oh, they’re rolling in it, they can pay for it,’ ” he said.

The plan is just one of many to be floated by cities and states frustrated by the pace of national health care reform. The California Legislature has also been debating a universal health care program proposed by Gov. Arnold Schwarzenegger, a Republican who has worked closely with the Democratic majority in Sacramento on a plan.

In San Francisco, city officials envision their program eventually providing care for about 73,000 uninsured adults, through a network of 22 clinics offering primary and preventive care and coordinating access to more specialized hospital services, including mental-health and substance-abuse services.

While the court, which will hear full arguments on the case this year, allowed the carrying out of the law, it did not necessarily offer a ringing endorsement.