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Employers sometimes don't want to hire an individual who is overqualified for the position. This may seem counterintuitive at first, but employers may have legitimate concerns about hiring an overly qualified individual. Perhaps the company is worried that the person will get bored, won't be happy with the pay, will be unhappy working for a supervisor who may be less qualified, or only sees this job as transitional until something better comes along.
These concerns boil down to worries that the highly qualified person won't stay with the company for long, or might cause disruption by trying to “take over” or tell others how to do the job, even while the new hire is still learning the job.
However, should an employer try to explain to the candidate that this is the reason for the rejection? Employers aren't actually required to provide a reason. Even if a rejected applicant requests an explanation, the employer can choose whether to provide one, or how much information to share. The organization should evaluate whether the risks of sharing the reason outweigh the benefits.
If an applicant was an excellent candidate but lacked specific experience or skills, the employer could certainly explain what was missing so the individual could reapply at a later date. Even if the person doesn't obtain the necessary skills and reapply, the honest feedback may foster goodwill.
For qualified applicants, sharing the above concerns may not benefit the company. In particular, explaining that the applicant was overqualified (which he or she may hear as “too qualified”) may cause the person to argue about why he or she is perfect for the job. In addition, the applicant might perceive the rejection as discriminatory.
Although it's technically okay to tell an applicant that he or she is overqualified, the individual may not understand why that is grounds for rejection. In particular, if the applicant is a member of a protected class (based on age, race, gender, disability, national origin, religion, or some other category) but the person selected is a member of a different class, the rejected individual might suspect a discriminatory motive, perhaps thinking along the lines of, “If I'm more qualified than the person who got hired, why was I rejected?”
If the company rejects an overqualified candidate and responds to a request about the reason, the company should deliver only objective, factual information that won't create the appearance of discrimination. Also, be prepared to respond to possible arguments about why the high qualifications actually make the individual perfect for the job. This doesn't mean directly refuting them, but it does mean effectively deflecting them.
Consider the likely reaction (and possible arguments) and how to handle them in a manner that avoids getting into an argument or defending the decision. Giving a reason such as “overqualified” doesn't require explaining your concerns, but the candidate may ask and will expect an answer.
Instead of using the term “overqualified” when giving a reason for a rejection, consider stating only that despite the individual's impressive credentials, the company selected someone else who was deemed to be a better fit for the position, and invite the candidate to apply for future openings.