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(Reuters) - A lawyer for Goldman Sachs urged a U.S. appeals court Wednesday to send a former employee's gender discrimination dispute to arbitration rather than allow her to proceed with a proposed class action.

The case is being watched closely because it could help other employers avoid discrimination class actions like the one filed by Lisa Parisi, a former Goldman Sachs managing director. Robert Giuffra, a lawyer for Goldman Sachs, told a three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York that a lower court was incorrect in deciding last year not to send Parisi's case to arbitration.

"When she signed the agreement and became one of the more highly paid people at Goldman, she agreed to arbitration as the forum," Giuffra said.

But Paul Bland, a lawyer for Parisi, argued that arbitration clauses can't prohibit employees from bringing class actions alleging a pattern or practice of discrimination at a company under Title VII of the Civil Rights Act.

"This is a substantive right," he said.

Recent U.S. Supreme Court decisions have favored arbitration.

In April 2011, the U.S. Supreme Court ruled that a unit of AT&T Inc could enforce a class action waiver in an arbitration agreement signed by a plaintiff bringing a proposed consumer class action. While the AT&T case focused on consumer rights, corporations have since last year sought to extend the reach of the ruling to employment law, in efforts to avoid discrimination and wage-and-hour lawsuits.

The Goldman case at issue Wednesday was filed in 2010 by three women, including Parisi. The lawsuit accused Goldman of gender bias and an "outdated corporate culture" favoring men over women for pay and promotions. The lawsuit, which sought class action status, demanded punitive and other damages as well as a change in Goldman's policies toward women.

Soon after the lawsuit was filed, Goldman asked the court to enforce Parisi's arbitration agreement and require her to proceed by herself rather than in a class action. In April 2011, U.S. Magistrate Judge James Francis denied Goldman's motion. Goldman urged Francis to reconsider his ruling in light of the Supreme Court's AT&T decision, but he declined in July 2011. U.S. District Judge Leonard Sand affirmed the magistrate's ruling in November 2011.

At the hearing Wednesday, three federal appeals court judges grilled both sides over the extent to which the legal rights Parisi would lose if sent to arbitration would be procedural, which can be waived by contract, rather than substantive, which can't.

"I'm still not clear, what do you think you're losing there?" Circuit Judge Barrington Daniels Parker asked Parisi's lawyer.

Both sides in the Goldman dispute have prominent backers in their corners. The U.S. Chamber of Commerce and Securities Industry and Financial Markets Association both filed friend-of-the-court briefs urging the 2nd Circuit to uphold Goldman's arbitration rights.

The former employees are meanwhile supported by groups including the NAACP Legal Defense and Education Fund, the National Women's Law Center, the National Employment Lawyers Association and Public Citizen.