The Undead Labs confirmed the layoff of a “significant number” of employees after completing its separation from Microsoft and beginning to operate as an independent studio controlled by its own employees. Some of the affected professionals worked on State of Decay 3, which remains in development.
The studio did not say how many positions were eliminated. In a statement published on LinkedIn, the company said that the laid-off professionals took part for years in the development of the franchise State of Decay and helped build both the third game and Undead Labs' own structure.
The layoffs were announced at the same time that the company confirmed its new structure. Undead Labs completed its exit from Xbox on September 22 and now operates as an independent, employee-owned studio. Microsoft had acquired the developer in 2018.
The transition is part of the broader reorganization of the Xbox division. According to Microsoft, Undead Labs left the group under conditions similar to those previously granted to Double Fine and Compulsion Games, including intellectual property, game catalog and financing to sustain the operation during the transition.
State of Decay 3 remains slated for 2027
Despite the staff reduction, State of Decay 3 remains in production. The game is currently in the alpha phase, and the developer maintains the plan to begin closed beta tests before the end of 2026. The launch remains slated for 2027 on Xbox, PC and PlayStation.
Microsoft also confirmed that Undead Labs will work with a new publisher, not yet publicly identified, and that State of Decay 3 will continue to arrive on Game Pass on the first day.
Undead Labs' independence, therefore, preserves the studio, its intellectual property and the development of its main project, but not the entire staff structure that existed under Microsoft. The company said it will disclose more details about its future plans later.
