diff --git a/flytepropeller/pkg/controller/handler.go b/flytepropeller/pkg/controller/handler.go
index 9f78b231100..0fcecf32bd2 100644
--- a/flytepropeller/pkg/controller/handler.go
+++ b/flytepropeller/pkg/controller/handler.go
@@ -104,7 +104,9 @@ func (p *Propeller) TryMutateWorkflow(ctx context.Context, originalW *v1alpha1.F
 	ctx = contextutils.WithResourceVersion(ctx, mutableW.GetResourceVersion())
 
 	maxRetries := uint32(p.cfg.MaxWorkflowRetries) // #nosec G115
-	if !mutableW.GetDeletionTimestamp().IsZero() || mutableW.Status.FailedAttempts > maxRetries {
+	if !mutableW.GetDeletionTimestamp().IsZero() ||
+		(mutableW.Status.FailedAttempts > maxRetries &&
+			mutableW.GetExecutionStatus().GetPhase() != v1alpha1.WorkflowPhaseHandlingFailureNode) {
 		var err error
 		func() {
 			defer func() {
diff --git a/flytepropeller/pkg/controller/nodes/dynamic/handler.go b/flytepropeller/pkg/controller/nodes/dynamic/handler.go
index d97b46d98f6..bc9e9cdaf03 100644
--- a/flytepropeller/pkg/controller/nodes/dynamic/handler.go
+++ b/flytepropeller/pkg/controller/nodes/dynamic/handler.go
@@ -98,7 +98,7 @@ func (d dynamicNodeTaskNodeHandler) produceDynamicWorkflow(ctx context.Context,
 		if stdErrors.IsCausedBy(err, utils.ErrorCodeUser) {
 			return handler.DoTransition(handler.TransitionTypeEphemeral,
 				handler.PhaseInfoFailure(core.ExecutionError_USER, "DynamicWorkflowBuildFailed", err.Error(), nil),
-			), handler.DynamicNodeState{Phase: v1alpha1.DynamicNodePhaseFailing, Reason: err.Error()}, nil
+			), handler.DynamicNodeState{Phase: v1alpha1.DynamicNodePhaseFailing, Reason: err.Error(), IsFailurePermanent: true}, nil
 		}
 		return handler.Transition{}, handler.DynamicNodeState{}, err
 	}
@@ -125,7 +125,7 @@ func (d dynamicNodeTaskNodeHandler) handleDynamicSubNodes(ctx context.Context, n
 		if stdErrors.IsCausedBy(err, utils.ErrorCodeUser) {
 			return handler.DoTransition(handler.TransitionTypeEphemeral,
 				handler.PhaseInfoFailure(core.ExecutionError_USER, "DynamicWorkflowBuildFailed", err.Error(), nil),
-			), handler.DynamicNodeState{Phase: v1alpha1.DynamicNodePhaseFailing, Reason: err.Error()}, nil
+			), handler.DynamicNodeState{Phase: v1alpha1.DynamicNodePhaseFailing, Reason: err.Error(), IsFailurePermanent: true}, nil
 		}
 		// Mostly a system error or unknown
 		return handler.Transition{}, handler.DynamicNodeState{}, err
diff --git a/flytepropeller/pkg/controller/workflow/executor.go b/flytepropeller/pkg/controller/workflow/executor.go
index 1d5be1b6fb6..01916b136d0 100644
--- a/flytepropeller/pkg/controller/workflow/executor.go
+++ b/flytepropeller/pkg/controller/workflow/executor.go
@@ -499,17 +499,28 @@ func (c *workflowExecutor) HandleAbortedWorkflow(ctx context.Context, w *v1alpha
 		}
 
 		var status Status
-		if err != nil {
-			// This workflow failed, record that phase and corresponding error message.
-			status = StatusFailed(&core.ExecutionError{
-				Code:    "Workflow abort failed",
+		if w.GetDeletionTimestamp() != nil {
+			// Explicit deletion: abort without running failure node.
+			if err != nil {
+				status = StatusFailed(&core.ExecutionError{
+					Code:    "Workflow abort failed",
+					Message: err.Error(),
+					Kind:    core.ExecutionError_SYSTEM,
+				})
+			} else {
+				status = Status{TransitionToPhase: v1alpha1.WorkflowPhaseAborted}
+			}
+		} else {
+			// Max system retries exhausted: give on_failure a chance to run.
+			execErr := &core.ExecutionError{
+				Code:    errors.RuntimeExecutionError.String(),
 				Message: err.Error(),
 				Kind:    core.ExecutionError_SYSTEM,
-			})
-		} else {
-			// Otherwise, this workflow is aborted.
-			status = Status{
-				TransitionToPhase: v1alpha1.WorkflowPhaseAborted,
+			}
+			if failureNode := w.GetOnFailureNode(); failureNode != nil {
+				status = StatusFailureNode(execErr)
+			} else {
+				status = StatusFailed(execErr)
 			}
 		}
 		if err := c.TransitionToPhase(ctx, w.ExecutionID.WorkflowExecutionIdentifier, w.GetExecutionStatus(), status); err != nil {