By a 7-0 vote, the state Supreme Court upheld a lower court decision that previously overturned the city ordinance, saying it violates a 1996 California initiative that banned state-funded affirmative action programs.

The initiative prohibits preferences in state and local contracting, employment and education. Although it does not define "preferences," the measure's sponsors sought to abolish quotas, set-asides and other allowances that gives groups advantages in bidding selection.

Under city law, San Jose required that on city contracts more than $50,000, construction contractors who need subcontractors contact at least four companies owned by women or minorities. They were required to negotiate with the potential subcontractors and either accept their bids or state legitimate reasons for rejection.

The law was challenged by a company whose bid on a contracting job for a San Jose sewage treatment plant in 1997 was rejected because the company did not reach out to minority or female subcontractors to help with the job.