When changing file encoding from something bad to utf-8, and arc-diffing it, the error message is implying that the new file is non-utf-8:
Invalid Content Encoding (Non-UTF8)
This diff includes a file which is not valid UTF-8 (it has invalid byte
sequences). You can either stop this workflow and fix it, or continue. If you
continue, this file will be marked as binary.
You can learn more about how Phabricator handles character encodings (and how
to configure encoding settings and detect and correct encoding problems) by
reading 'User Guide: UTF-8 and Character Encoding' in the Phabricator
documentation.
AFFECTED FILE
bad-encode
Do you want to mark this file as binary and continue? [Y/n]
Uploaded binary data for "bad-encode".
Uploaded binary data for "bad-encode".This can be confusing when users try to understand why this file isn't UTF-8.
https://secure.phabricator.com/D15121 is an example.