We have been doing arc flash 5 year review. During the process some arc flash incident energy level has increased due to incorrect filled data (such as cable lengths, protection settings, etc..) / minor system changes.

If we suddenly put a label with increased incident energy value for an equipment where there is no major system changes has been done in last 5 years will impact the employees operate the switch. And rise a safety concern where they were operating a switch with lower PPE and now suddenly it is increased/changed. Due to this reason employees may not trust these arc flash labels.

What would be the most appropriate step to resolve this issue?

This is a sticky situation but I think the simple answer is honesty. Let them know some assumptions were made but have been refined and the incident energy levels have increased. I do not know your operation, but operating a switch may not be affected by this change anyway- assuming everything is closed and maintained.

Usually, if the protective devices are coordinated properly (although there is nothing such as perfect coordination), you may not have to make a major trip settings adjustment after five years, especially when you don't have any major changes added to your existing system. But it seems like in the first study, coordination was not done properly and now after some experience, you want to achieve coordination, and in doing so, the incident energy increased. If that is the case, I will evaluate the past power interruption history of your plant. If there wasn't nuisance trip history, then you may have to analyze the coordination study report and decide if you want to change the trip settings. However, remember that system coordination has higher priority over arc flash. With the revised utility information and new trip settings, although the incident energy have increased, you might have contributed to over all system reliability and I think you should educate the workers about it. But do not let them loose faith in the arc flash label warning, otherwise I think our study would be meaningless if they don't understand and respect it. Also, now there are many Arc Rated clothing & PPE manufacturers who are evolving these gears. There are thinner and comfortable clothing that has the same Arc rating (ATPV-arc thermal performance value) of the thick cloth that we used five years ago. There are even hoods with fans. So if the magnitude of your new incident energy value is not drastically higher from previous study, you may compensate with better comfortable gear for new higher incident energy.

How come there is no complaints if it goes down or stays the same and only gets questions if it goes up?

I agree with engrick, go with honesty. Better to change the requirements due to incorrect study, than to change them only after an incident occurs.

(Remind them that just a few years ago they would have been switching in a short sleeve polyester shirt!)