Yes using essential oil too much on your skin can cause rashes or other skin irritation so you should use essential oils on your skin only when needed and in moderation.
Also when applying essential oils to your skin you should always dilute the essential oil first using a carrier oil such as olive oil which will make the essential oil less strong so it doesn't irritate your skin like it would without being diluted.
If you notice some irritation of your skin or rashes on your skin then you should cut back on the use of the essential oils because it's likely you're using too much or your skin is letting you know you may be allergic to the essential oils.