diff --git a/subsys/usb/usb_c/usbc_pe_common.c b/subsys/usb/usb_c/usbc_pe_common.c
index 024e40e3627..f12ef51dba5 100644
--- a/subsys/usb/usb_c/usbc_pe_common.c
+++ b/subsys/usb/usb_c/usbc_pe_common.c
@@ -228,7 +228,8 @@ void pe_report_error(const struct device *dev, const enum pe_error e,
 	 * Generate Hard Reset if Protocol Error occurred
 	 * while in PE_Send_Soft_Reset state.
 	 */
-	if (pe_get_state(dev) == PE_SEND_SOFT_RESET) {
+	if (pe_get_state(dev) == PE_SEND_SOFT_RESET ||
+	    pe_get_state(dev) == PE_SOFT_RESET) {
 		pe_set_state(dev, PE_SNK_HARD_RESET);
 		return;
 	}
diff --git a/subsys/usb/usb_c/usbc_pe_common_internal.h b/subsys/usb/usb_c/usbc_pe_common_internal.h
index fd19837200c..258d6706237 100644
--- a/subsys/usb/usb_c/usbc_pe_common_internal.h
+++ b/subsys/usb/usb_c/usbc_pe_common_internal.h
@@ -66,51 +66,46 @@ enum usbc_pe_state {
 enum pe_flags {
 	/** Accept message received from port partner */
 	PE_FLAGS_ACCEPT = 0,
-	/**
-	 * Protocol Error was determined based on error recovery
-	 * current state
-	 */
-	PE_FLAGS_PROTOCOL_ERROR = 1,
 	/** A message we requested to be sent has been transmitted */
-	PE_FLAGS_TX_COMPLETE = 2,
+	PE_FLAGS_TX_COMPLETE = 1,
 	/** A message sent by a port partner has been received */
-	PE_FLAGS_MSG_RECEIVED = 3,
+	PE_FLAGS_MSG_RECEIVED = 2,
 	/**
 	 * A hard reset has been requested by the DPM but has not been sent,
 	 * not currently used
 	 */
-	PE_FLAGS_HARD_RESET_PENDING = 4,
+	PE_FLAGS_HARD_RESET_PENDING = 3,
 	/** An explicit contract is in place with our port partner */
-	PE_FLAGS_EXPLICIT_CONTRACT = 5,
+	PE_FLAGS_EXPLICIT_CONTRACT = 4,
 	/**
 	 * Waiting for Sink Capabailities timed out.  Used for retry error
 	 * handling
 	 */
-	PE_FLAGS_SNK_WAIT_CAP_TIMEOUT = 6,
+	PE_FLAGS_SNK_WAIT_CAP_TIMEOUT = 5,
 	/**
 	 * Flag to note current Atomic Message Sequence (AMS) is interruptible.
 	 * If this flag is not set the AMS is non-interruptible. This flag must
 	 * be set in the interruptible's message state entry.
 	 */
-	PE_FLAGS_INTERRUPTIBLE_AMS = 7,
+	PE_FLAGS_INTERRUPTIBLE_AMS = 6,
 	/** Flag to trigger sending a Data Role Swap */
-	PE_FLAGS_DR_SWAP_TO_DFP = 8,
+	PE_FLAGS_DR_SWAP_TO_DFP = 7,
 	/** Flag is set when an AMS is initiated by the Device Policy Manager */
-	PE_FLAGS_DPM_INITIATED_AMS = 9,
+	PE_FLAGS_DPM_INITIATED_AMS = 8,
 	/** Flag to note message was discarded due to incoming message */
-	PE_FLAGS_MSG_DISCARDED = 10,
+	PE_FLAGS_MSG_DISCARDED = 9,
 	/** Flag to trigger sending a soft reset */
-	PE_FLAGS_SEND_SOFT_RESET = 11,
+	PE_FLAGS_SEND_SOFT_RESET = 10,
 	/**
 	 * This flag is set when a Wait message is received in response to a
 	 * Sink REQUEST
 	 */
-	PE_FLAGS_WAIT_SINK_REQUEST = 12,
+	PE_FLAGS_WAIT_SINK_REQUEST = 11,
 	/**
 	 * This flag is set when a Wait message is received in response to a
 	 * Data Role Swap
 	 */
-	PE_FLAGS_WAIT_DATA_ROLE_SWAP = 13,
+	PE_FLAGS_WAIT_DATA_ROLE_SWAP = 12,
 
 	/** Number of PE Flags */
 	PE_FLAGS_COUNT
diff --git a/subsys/usb/usb_c/usbc_pe_snk_states.c b/subsys/usb/usb_c/usbc_pe_snk_states.c
index 8c21d3049d2..b3c48b10815 100644
--- a/subsys/usb/usb_c/usbc_pe_snk_states.c
+++ b/subsys/usb/usb_c/usbc_pe_snk_states.c
@@ -527,7 +527,6 @@ void pe_snk_hard_reset_entry(void *obj)
 	atomic_set_bit(pe->flags, PE_FLAGS_HARD_RESET_PENDING);
 
 	atomic_clear_bit(pe->flags, PE_FLAGS_SNK_WAIT_CAP_TIMEOUT);
-	atomic_clear_bit(pe->flags, PE_FLAGS_PROTOCOL_ERROR);
 
 	/* Request the generation of Hard Reset Signaling by the PHY Layer */
 	prl_execute_hard_reset(dev);
@@ -715,7 +714,7 @@ void pe_send_soft_reset_run(void *obj)
 	/*
 	 * The Policy Engine Shall transition to the PE_SNK_Wait_for_Capabilities
 	 * state when:
-	 * 	1: An Accept Message has been received on SOP
+	 *	1: An Accept Message has been received on SOP
 	 */
 	else if (atomic_test_and_clear_bit(pe->flags, PE_FLAGS_MSG_RECEIVED)) {
 		header = prl_rx->emsg.header;
@@ -726,11 +725,10 @@ void pe_send_soft_reset_run(void *obj)
 	}
 	/*
 	 * The Policy Engine Shall transition to the PE_SNK_Hard_Reset state when:
-	 * 	1: A SenderResponseTimer timeout occurs
-	 * 	2: Or the Protocol Layer indicates that a transmission error has occurred
+	 *	1: A SenderResponseTimer timeout occurs (Handled in pe_report_error function)
+	 *	2: Or the Protocol Layer indicates that a transmission error has occurred
 	 */
-	else if (atomic_test_bit(pe->flags, PE_FLAGS_PROTOCOL_ERROR) ||
-		   usbc_timer_expired(&pe->pd_t_sender_response)) {
+	else if (usbc_timer_expired(&pe->pd_t_sender_response)) {
 		pe_set_state(dev, PE_SNK_HARD_RESET);
 	}
 }
@@ -779,11 +777,20 @@ void pe_soft_reset_run(void *obj)
 		return;
 	}
 
+	/*
+	 * The Policy Engine Shall transition to the PE_SNK_Wait_for_Capabilities
+	 * state when:
+	 *	1: The Accept Message has been sent on SOP.
+	 */
 	if (atomic_test_and_clear_bit(pe->flags, PE_FLAGS_TX_COMPLETE)) {
 		pe_set_state(dev, PE_SNK_WAIT_FOR_CAPABILITIES);
-	} else if (atomic_test_and_clear_bit(pe->flags, PE_FLAGS_PROTOCOL_ERROR)) {
-		pe_set_state(dev, PE_SNK_HARD_RESET);
 	}
+	/*
+	 * The Policy Engine Shall transition to the PE_SNK_Hard_Reset
+	 * state when:
+	 *	1: The Protocol Layer indicates that a transmission error
+	 *	   has occurred. (Handled in pe_report_error function)
+	 */
 }
 
 /**