diff --git a/pkg/controller/podautoscaler/horizontal_test.go b/pkg/controller/podautoscaler/horizontal_test.go
index c7a144e4394..2d74a8aef9e 100644
--- a/pkg/controller/podautoscaler/horizontal_test.go
+++ b/pkg/controller/podautoscaler/horizontal_test.go
@@ -103,6 +103,7 @@ type testCase struct {
 	reportedLevels       []uint64
 	reportedCPURequests  []resource.Quantity
 	reportedPodReadiness []v1.ConditionStatus
+	reportedPodPhase     []v1.PodPhase
 	scaleUpdated         bool
 	statusUpdated        bool
 	eventCreated         bool
@@ -250,10 +251,14 @@ func (tc *testCase) prepareTestClient(t *testing.T) (*fake.Clientset, *metricsfa
 			if tc.reportedPodReadiness != nil {
 				podReadiness = tc.reportedPodReadiness[i]
 			}
+			podPhase := v1.PodRunning
+			if tc.reportedPodPhase != nil {
+				podPhase = tc.reportedPodPhase[i]
+			}
 			podName := fmt.Sprintf("%s-%d", podNamePrefix, i)
 			pod := v1.Pod{
 				Status: v1.PodStatus{
-					Phase: v1.PodRunning,
+					Phase: podPhase,
 					Conditions: []v1.PodCondition{
 						{
 							Type:   v1.PodReady,
@@ -713,6 +718,24 @@ func TestScaleUpUnreadyNoScale(t *testing.T) {
 	tc.runTest(t)
 }
 
+func TestScaleUpIgnoresFailedPods(t *testing.T) {
+	tc := testCase{
+		minReplicas:          2,
+		maxReplicas:          6,
+		initialReplicas:      2,
+		desiredReplicas:      4,
+		CPUTarget:            30,
+		CPUCurrent:           60,
+		verifyCPUCurrent:     true,
+		reportedLevels:       []uint64{500, 700},
+		reportedCPURequests:  []resource.Quantity{resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0")},
+		reportedPodReadiness: []v1.ConditionStatus{v1.ConditionTrue, v1.ConditionTrue, v1.ConditionFalse, v1.ConditionFalse},
+		reportedPodPhase:     []v1.PodPhase{v1.PodRunning, v1.PodRunning, v1.PodFailed, v1.PodFailed},
+		useMetricsAPI:        true,
+	}
+	tc.runTest(t)
+}
+
 func TestScaleUpDeployment(t *testing.T) {
 	tc := testCase{
 		minReplicas:         2,
@@ -1017,6 +1040,24 @@ func TestScaleDownIgnoresUnreadyPods(t *testing.T) {
 	tc.runTest(t)
 }
 
+func TestScaleDownIgnoresFailedPods(t *testing.T) {
+	tc := testCase{
+		minReplicas:          2,
+		maxReplicas:          6,
+		initialReplicas:      5,
+		desiredReplicas:      3,
+		CPUTarget:            50,
+		CPUCurrent:           28,
+		verifyCPUCurrent:     true,
+		reportedLevels:       []uint64{100, 300, 500, 250, 250},
+		reportedCPURequests:  []resource.Quantity{resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0")},
+		useMetricsAPI:        true,
+		reportedPodReadiness: []v1.ConditionStatus{v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionFalse, v1.ConditionFalse},
+		reportedPodPhase:     []v1.PodPhase{v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodFailed, v1.PodFailed},
+	}
+	tc.runTest(t)
+}
+
 func TestTolerance(t *testing.T) {
 	tc := testCase{
 		minReplicas:         1,
diff --git a/pkg/controller/podautoscaler/replica_calculator.go b/pkg/controller/podautoscaler/replica_calculator.go
index c08deded3fd..a7a54677c02 100644
--- a/pkg/controller/podautoscaler/replica_calculator.go
+++ b/pkg/controller/podautoscaler/replica_calculator.go
@@ -88,7 +88,11 @@ func (c *ReplicaCalculator) GetResourceReplicas(currentReplicas int32, targetUti
 
 		if pod.Status.Phase != v1.PodRunning || !podutil.IsPodReady(&pod) {
 			// save this pod name for later, but pretend it doesn't exist for now
-			unreadyPods.Insert(pod.Name)
+			if pod.Status.Phase != v1.PodFailed {
+				// Failed pods should not be counted as unready pods as they will
+				// not become running anymore.
+				unreadyPods.Insert(pod.Name)
+			}
 			delete(metrics, pod.Name)
 			continue
 		}
diff --git a/pkg/controller/podautoscaler/replica_calculator_test.go b/pkg/controller/podautoscaler/replica_calculator_test.go
index 58904a085bb..2c5f8250df7 100644
--- a/pkg/controller/podautoscaler/replica_calculator_test.go
+++ b/pkg/controller/podautoscaler/replica_calculator_test.go
@@ -77,6 +77,7 @@ type replicaCalcTestCase struct {
 	metric   *metricInfo
 
 	podReadiness []v1.ConditionStatus
+	podPhase     []v1.PodPhase
 }
 
 const (
@@ -90,15 +91,24 @@ func (tc *replicaCalcTestCase) prepareTestClient(t *testing.T) (*fake.Clientset,
 	fakeClient := &fake.Clientset{}
 	fakeClient.AddReactor("list", "pods", func(action core.Action) (handled bool, ret runtime.Object, err error) {
 		obj := &v1.PodList{}
-		for i := 0; i < int(tc.currentReplicas); i++ {
+		podsCount := int(tc.currentReplicas)
+		// Failed pods are not included in tc.currentReplicas
+		if tc.podPhase != nil && len(tc.podPhase) > podsCount {
+			podsCount = len(tc.podPhase)
+		}
+		for i := 0; i < podsCount; i++ {
 			podReadiness := v1.ConditionTrue
-			if tc.podReadiness != nil {
+			if tc.podReadiness != nil && i < len(tc.podReadiness) {
 				podReadiness = tc.podReadiness[i]
 			}
+			podPhase := v1.PodRunning
+			if tc.podPhase != nil {
+				podPhase = tc.podPhase[i]
+			}
 			podName := fmt.Sprintf("%s-%d", podNamePrefix, i)
 			pod := v1.Pod{
 				Status: v1.PodStatus{
-					Phase: v1.PodRunning,
+					Phase: podPhase,
 					Conditions: []v1.PodCondition{
 						{
 							Type:   v1.PodReady,
@@ -405,6 +415,25 @@ func TestReplicaCalcScaleUpUnreadyNoScale(t *testing.T) {
 	tc.runTest(t)
 }
 
+func TestReplicaCalcScaleUpIgnoresFailedPods(t *testing.T) {
+	tc := replicaCalcTestCase{
+		currentReplicas:  2,
+		expectedReplicas: 4,
+		podReadiness:     []v1.ConditionStatus{v1.ConditionTrue, v1.ConditionTrue, v1.ConditionFalse, v1.ConditionFalse},
+		podPhase:         []v1.PodPhase{v1.PodRunning, v1.PodRunning, v1.PodFailed, v1.PodFailed},
+		resource: &resourceInfo{
+			name:     v1.ResourceCPU,
+			requests: []resource.Quantity{resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0")},
+			levels:   []int64{500, 700},
+
+			targetUtilization:   30,
+			expectedUtilization: 60,
+			expectedValue:       numContainersPerPod * 600,
+		},
+	}
+	tc.runTest(t)
+}
+
 func TestReplicaCalcScaleUpCM(t *testing.T) {
 	tc := replicaCalcTestCase{
 		currentReplicas:  3,
@@ -610,6 +639,25 @@ func TestReplicaCalcScaleDownIgnoresUnreadyPods(t *testing.T) {
 	tc.runTest(t)
 }
 
+func TestReplicaCalcScaleDownIgnoresFailedPods(t *testing.T) {
+	tc := replicaCalcTestCase{
+		currentReplicas:  5,
+		expectedReplicas: 3,
+		podReadiness:     []v1.ConditionStatus{v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionTrue, v1.ConditionFalse, v1.ConditionFalse},
+		podPhase:         []v1.PodPhase{v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodRunning, v1.PodFailed, v1.PodFailed},
+		resource: &resourceInfo{
+			name:     v1.ResourceCPU,
+			requests: []resource.Quantity{resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0"), resource.MustParse("1.0")},
+			levels:   []int64{100, 300, 500, 250, 250},
+
+			targetUtilization:   50,
+			expectedUtilization: 28,
+			expectedValue:       numContainersPerPod * 280,
+		},
+	}
+	tc.runTest(t)
+}
+
 func TestReplicaCalcTolerance(t *testing.T) {
 	tc := replicaCalcTestCase{
 		currentReplicas:  3,