Undead Labs confirms layoffsas it becomes employee owned

Undead Labs says it is laying off a "significant number" of colleagues as it becomes an independent, employee-owned studio. The developer has not given a headcount, but says the people leaving helped make State of Decay 3. Its announcement ties a change of ownership to an immediate loss of work for some of the team that built the game. The studio says development continues and has kept its 2027 release target.

The job losses appeared in a statement from Undead Labs on 22 September, alongside its announcement that the separation from Xbox was complete. The studio described the departing workers as developers who had spent years on the series and said their work remains part of the third game. GamesIndustry.biz reported the move to employee ownership and updated its account to include the layoffs. Neither the studio nor Microsoft's Xbox update breaks down how many Undead Labs employees are leaving, which roles they held or the terms offered to them.

Employee ownership describes who holds the studio, but Undead Labs has not published its ownership structure or explained how much control staff will have over decisions. Nor has it named the publisher that will release State of Decay 3. Xbox said on 22 September that the studio had transitioned on terms similar to those of Compulsion Games and Double Fine, which it said returned to management with their intellectual property, back catalogues and funding to keep operating. Xbox also said the new publisher will bring State of Decay 3 to Game Pass on its first day.

That differs from Xbox's July plan. At the time, the company said Undead Labs had entered terms to join new ownership with funding to complete and grow the game. The completed arrangement is instead described by the studio as employee ownership. The public statements do not explain why the earlier plan changed or whether the job cuts were a condition of the final agreement. It would be premature to treat either claim as an explanation for the layoffs.

For players, Undead Labs says State of Decay 3 is in alpha, is still heading for a closed beta before the end of 2026 and remains targeted for release in 2027 on Xbox, PC and PlayStation. Those are the studio's current plans, not a guarantee that the loss of experienced staff will leave production untouched. For the workers named only as a "significant number", the consequence is already concrete: they are leaving the studio as it begins its independent life.