Undead Labs makes 'significant' layoffs after splitting from Xbox

Chris Kerr,Contributor

September 23, 2026

schedule1 Min ReadImage via Undead Labs

State of Decay studio Undead Labs has successfully divested from Xbox, but the separation has come at a cost.

Writing on LinkedIn, the company confirmed it is becoming an "independent, employee-owned studio." It also announced that it is laying off a "significant number" of employees.

Although it didn't specify how many roles have been cut, the studio confirmed some of those impacted worked on State of Decay 3.

"It's difficult to reach this moment knowing that not everyone who helped get us here gets to make the rest of the journey with us," reads the statement.

"They are exceptionally talented developers who have poured years into the State of Decay franchise: solving hard problems, looking after one another, and helping shape both this game and this studio. Their work remains part of Undead Labs and part of State of Decay 3, regardless of where their careers take them next.

"There have been far too many announcements like this across the industry, and we hate adding to that list. These are people we'd hire again in a heartbeat, and we hope the industry takes notice."

The news comes shortly after Microsoft laid off another 268 workers across its video game division, including significant cuts at Halo Studios. Social media posts from impacted employees indicate other studios such as Rare, Treyarch, World's Edge, Activision, and The Coalition have also been targeted.

Microsoft said Undead Labs regained its independence under similar terms to Double Fine and Compulsion, which split from Xbox earlier this year with their IP, back catalogs, and runway funding.

Undead Labs will now work with a new publisher to release State of Decay 3. The title is still slated for a day one launch on Xbox Game Pass.

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About the Author

Chris Kerr

Contributor

Game Developer's former news editor Chris Kerr is an award-winning reporter with over a decade of experience in the game industry. His byline has appeared in notable print and digital publications including Edge, Stuff, Wireframe, International Business Times, andPocketGamer.biz. Throughout his career, Chris has covered major industry events including GDC, PAX Australia, Gamescom, Paris Games Week, and Develop Brighton.

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