Undead Labs, the studio behind the upcoming zombie survival game State of Decay 3, has confirmed a significant number of layoffs. The news comes as the studio transitions from being part of Xbox back to an independent, employee-owned entity. While the exact number of affected employees has not been officially disclosed, one source suggested it could be as many as 40 developers.
In a statement shared on LinkedIn, Undead Labs announced its return to independence. "Today, we announced that Undead Labs is becoming an independent, employee-owned studio," the studio wrote. "Our focus going forward is simple: making the best games we can and earning the continued support of the people who choose to spend their time with us. Unfortunately, today we are also saying goodbye to a significant number of our colleagues. 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."
Despite the workforce reduction, studio head Philip Holt assured that the development of State of Decay 3 will proceed as planned. "State of Decay 3 remains in active development, and these changes will not impact the game’s launch," Holt told IGN. "The team is continuing its work on schedule, and we remain committed to delivering the experience our community has been waiting for. We’re grateful to everyone who has contributed to the game."
Undead Labs was among several studios that departed from Microsoft's Xbox division. These divestitures reportedly included intellectual property, back catalogs, and runway funding. While State of Decay 3 is said to have a new publisher, that entity has not yet been publicly revealed.
The sequel to the popular zombie survival series was first announced in 2020, and its development has reportedly faced challenges. The studio has previously committed to a closed beta test for State of Decay 3 by the end of 2026.
FX director John Gronquist, who was part of the layoffs, shared on LinkedIn that the company and leadership handled the process with transparency and respect. "Today the studio that I have been at since its inception 15 years ago fought its way back to independence, at great cost," Gronquist posted. "Sadly I won’t be making that final leg of the journey with them, being included in the latest round of layoffs. The company and leadership have gone above and beyond to be transparent and treat the process with humanity and respect that is rare in this industry, and I leave with no regrets other than not being there with them at the finish line to ship State of Decay 3."