In corporation law, the enhanced scrutiny test was established in Unocal Corp. v. Mesa Petroleum, 493 A.2d 946 (Del. 1985), also known as the Unocal Test. In this case, the Delaware Supreme Court established the enhanced scrutiny test, which is applied to a target board's decision-making process when a takeover is occurring, to determine if the business judgment rule will apply to their decisions.
There are two prongs to the enhanced scrutiny test. The first prong, the reasonableness test, states that the target board must demonstrate that it had reasonable grounds for believing that a danger to corporate policy and effectiveness existed. If this prong is met, then the court next applies the second prong of the test, which is the proportionality test. This prong states that the target board must demonstrate that its action or response was reasonable in relation to the threat posed and that the response was not draconian and inappropriate in response to the threat.
If both prongs of the enhanced scrutiny test are satisfied, then the court will use the business judgment rule to evaluate decisions made by the target board.
In constitutional law, the enhanced scrutiny test is a term used to refer to intermediate scrutiny, which is used to determine the constitutionality of a statute.
[Last updated in November of 2022 by the Wex Definitions Team]