Undead Labs Announces Layoffs Shortly After Xbox Independence—’Saying Goodbye to Many Colleagues,’ State of Decay 3 Release for 2027 Continues Unchanged [September 2026]

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Undead Labs, developer of the State of Decay franchise and newly independent from Xbox, announced layoffs on September 23, 2026 (Japan Standard Time) via LinkedIn. While the number of employees affected was not disclosed, the statement described it as “a day when we must say goodbye to many colleagues.” Meanwhile, development of State of Decay 3 continues, with a planned 2027 release on PC (Steam/Xbox), PS5, and Xbox Series X|S. Game Pass day-one support remains unchanged.

The timing is brutal. Undead Labs had just completed its separation from Xbox on September 22 (US time), announcing on its official site that it had become an “independent, employee-owned studio.” On that very same day, the studio would part ways with some of its staff. The celebration of independence and news of restructuring hit simultaneously.

Since July’s major Xbox reorganization categorized Undead Labs as “for sale,” the arrival of this day may have been half-expected. Still, for those of us who have followed the series, it’s difficult to process. This article organizes the content of the layoff announcement, the circumstances surrounding Xbox independence, and the current status of State of Decay 3 using primary source information.

First, let’s confirm what was said in the announcement and what was left unsaid.

What Was Undead Labs’ Layoff Announcement? What Was Revealed?

Undead Labs announced employee layoffs on September 23, 2026 (Japan Standard Time) via LinkedIn. The number of employees affected was not disclosed. The statement opened with “Today is a day when we must say goodbye to many colleagues,” and was structured primarily around respect for departing staff.

According to the statement as reported by Game*Spark, Undead Labs stated: “While such announcements have become far too common across the industry, we regret that we find ourselves added to that list. Regarding those who are leaving, whatever path their careers take, their work’s achievements will remain as part of Undead Labs and as part of State of Decay 3,” closing with this sentiment.

Kotaku reported, citing sources, that up to 40 employees may have been affected, though this figure has not been confirmed by the studio. In this article, we will refer to it as “number not disclosed” following the official statement.

Honestly, the phrase “far too common across the industry” cuts deep. 2026 has seen major layoffs continue—Bungie in June, Xbox itself in July. Studios like Undead Labs who openly state they’ve been added to “that list” are rare, which is why the despair from the ground level comes through so clearly. As a former retro game shop employee, I find myself thinking that all we can do at times like this is buy and support these games.

Why the Independence from Xbox? The Journey from Sale to Employee-Owned Studio

Undead Labs’ independence stems from Microsoft’s major Xbox business reorganization announced in July 2026. Within a plan to cut 3,200 employees in fiscal 2027, Undead Labs and Ninja Theory were classified as “for sale.” Unlike Double Fine and Compulsion Games’ “re-independence,” their future was uncertain.

The outcome arrived on September 22. Undead Labs announced on its official site (stateofdecay.com) that it had completed its separation from Xbox and was beginning operations as an “independent, employee-owned game development studio.” Rather than a third-party sale, this independence means employees hold equity. Studio head Philip Holt stated that independence would bring them closer to the community and allow them to focus on making the best possible game.

We’re enormously grateful for our years as part of Xbox and for everything that relationship has made possible. Microsoft has been part of the State of Decay story from the very beginning, and we’re proud of everything we’ve accomplished together.

Source: State of Decay Official Site

It’s a statement emphasizing gratitude to Xbox and highlighting an amicable separation. Indeed, Microsoft has been a partner since the original State of Decay in 2013 and acquired Undead Labs in 2018. Independence after eight years under Xbox’s umbrella while retaining the IP is significant. However, as of September 24, 2026, neither the studio nor Microsoft has disclosed details about funding or a new publisher.

What’s important to note is that independence and layoffs were announced the same day. Having left Xbox’s umbrella to become self-sufficient, the studio had no choice but to reassess its organizational size. In other words, “independence’s freedom” and “independence’s cost” arrived together.

What About State of Decay 3? 2027 Release, PS5, Game Pass Day-One Support Unchanged

State of Decay 3 development continues with no changes to release plans. Studio head Philip Holt stated: “State of Decay 3 is actively in development right now, and this transition will not impact the game’s launch.” Release is planned for 2027 on PC (Steam/Xbox), PS5, and Xbox Series X|S, with Game Pass day-one support maintained.

According to the official site, the game is currently in alpha stage with a closed beta targeting late 2026. Playtest registration is currently open. The PS5 version marks the series’ first PlayStation debut, continuing the momentum from its announcement at Xbox Games Showcase 2026. Even after leaving Xbox, maintaining Game Pass day-one support is possible because the contract with Microsoft carries over post-independence.

The concern is how the staff reduction that followed so closely after the “no impact on release” statement will affect the schedule. Even if the 2027 timeline holds, the scope and timing of the closed beta warrant close attention. Conversely, we could interpret this as the studio consolidating into a “core team to complete 3” structure. If it results in a version that plays great on Steam Deck, I have nothing more to say.

What About State of Decay 2 and the Series’ History?

State of Decay is an open-world zombie survival game that debuted in 2013 for Xbox 360 and Windows. Its predecessor, State of Decay 2, launched on May 22, 2018 for Xbox One and Windows 10, and on March 13, 2020, released as the major update version “Juggernaut Edition” on Steam and Epic Games Store. Managing a survivor community and employing permadeath—where dead characters never return—forms the backbone of the series.

State of Decay 3 continues this tradition with up to 4-player co-op base building and zombie elimination. Seven years have passed since its first reveal at Xbox Showcase 2020, making Undead Labs’ independence a milestone occurring in the final stretch of this long development.

How to View the Studio’s Independence? The Good Points and Concerns

This sequence of events mixes bad news with good news. Breaking it down:

• Good: Retained the IP while achieving independence as employee-owned—The scenario of third-party sale and brand dissolution was avoided
• Good: State of Decay 3’s 2027 launch, PS5, and Game Pass day-one support all maintained—Player expectations remain unchanged
• Concern: Number of layoffs not disclosed—Without knowing the scale, it’s hard to assess the actual development structure from outside
• Concern: New publisher and funding undisclosed—As of September 24, 2026, the company name hasn’t been revealed, and post-independence sustainability awaits future announcements

As Spotgeeks, what we’re watching for is how the “freedom of independence” reflects in the game’s content. Using Philip Holt’s words, independence exists to bring them closer to community. If that’s the case, then there’s potential for State of Decay 3 to become a game where playtest feedback is incorporated more than ever. The closed beta planned for later this year will be the first real test of that.

Summary: Undead Labs Announces Layoffs, State of Decay 3 Release for 2027 Continues Unchanged

Undead Labs announced layoffs on September 23, 2026 (Japan Standard Time) via LinkedIn. While the number wasn’t disclosed, the statement emphasized respect for departing colleagues alongside the acknowledgment that “such announcements have become far too common across the industry.” The studio had completed its separation from Xbox just the day before on September 22, becoming an independent employee-owned studio.

State of Decay 3 development continues with planned 2027 release on PC (Steam/Xbox), PS5, and Xbox Series X|S, with Game Pass day-one support unchanged. The game is currently in alpha stage with closed beta planned for late 2026. Pricing and the new publisher remain unannounced as of September 24, 2026.

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