What is encryption loss when unzipping?

When I drag files from a .ZIP file my friend sent me, it barks:

Do you want to copy this folder without encryption?`

A problem is preventing that folder from being encrypted.

What's causing the error?

(When I use 7Zip or WinRar to unzip that same folder, there's no warnings/errors whatsoever.)

Appears to be a bug in how Windows handles zip files created on a Mac, as explained by http://blogs.msdn.com/b/asklar/archive/2012/05/03/why-do-zip-files-from-mac-os-show-up-as-green-encrypted.aspx

The problem happens when Windows gets confused about how to interpret file/folder attributes. In FAT/NTFS, these values are stored according to this definition of File Attribute Constants. You’ll see that FILE_ATTRIBUTE_ENCRYPTED has a value of 0x4000.

The interesting part is how Mac OS is storing its file attributes in the zip archive. Mac OS, being a UNIX based OS, uses the UNIX file/folder attributes system (and permissions, but that’s a topic for another time…).. Well, it just so happens that in POSIX, the flag to describe a directory/folder (S_IFDIR) coincidentally also has the value 0x4000. So it turns out the zip decompression code wasn’t aware that there might be other operating systems out there that might create zip archives…

Bonus question: can you change this behavior. Answer: No; but you can clear the encryption flag from the extracted files/folders easily.

The inital files probably had their NTFS encryption set. I wouldn't worry too much about it. Unless it doesn't open. Then you need to tell your friend to send the files to you unencrypted :)

For what it's worth (and the OP's screenshot helps confirm), this seems to pop up when a file is compressed on a Mac using its context menu/built-in Compress function and then unzipped on Windows. (Sorry, not enough cred to comment, but figured worth mentioning.)

Seems harmless in my experience to say Yes for all. Note that (again, in my experience) the files weren't encrypted on the Mac either.