Undead Labs told its staff weeks in advance that job losses were coming under almost any divestiture scenario, and the layoffs landed in late September as the studio completed its split from Xbox Game Studios.

Studio head Philip Holt described the approach as unusually — perhaps excessively — candid. In an interview with The Game Business, he said he chose transparency over managed silence rather than keep developers guessing while Microsoft moved to divest the studio from its Xbox Game Studios portfolio, a plan Xbox announced in July.

"Rather than keeping them in the dark and manufacture some alternate reality, I just brought them alongside," Holt told The Game Business. "That probably reduced some anxiety."

What did transparency actually look like?

Holt said he framed the situation from the employee's perspective: no control over the outcome, incomplete information, a job at risk, and real doubt about whether the studio's current project would ship. His response was early, direct conversation.

• Leadership signaled from the outset that "under probably any scenario, there'd be job losses"
• Conversations stayed "pretty direct" through the transition period
• Staff were prepared on the day the layoffs occurred

"Nobody wants to lose a job, but I think people understood the reason," Holt said.

The approach mirrors the logic behind California's Worker Adjustment and Retraining Notification (WARN) Act, which requires companies with more than 75 employees to give 60 days' notice before mass layoffs or face penalties. Undead Labs is based in Washington, where the same statute does not govern, but the studio applied the underlying principle: advance notice gives employees time to line up other work before their income stops.

How big were the cuts?

Holt declined to confirm a specific headcount. He argued that citing a number turns the layoffs into a statistic and pulls attention away from the people affected. The studio's own LinkedIn statement acknowledged the cuts were "significant."

The structural picture is clear. Xbox announced the planned divestiture in July. Undead Labs then went independent, and it retained ownership of the State of Decay property — the franchise it has built since the original 2013 release and its sequel.

What happens to State of Decay 3?

Microsoft acquired Undead Labs in 2018. Two years later, in 2020, Xbox announced State of Decay 3, the zombie survival game that remains the studio's active project.

Despite the layoffs and the ownership transition, Holt insists the game is still targeting a 2027 release.

For a studio now self-owned, carrying a flagship franchise through staff reductions on a fixed ship window is the central operational test. Whether Undead Labs can hold that 2027 date — and whether independence brings new publishing or funding partners — is what to watch as the studio rebuilds post-divestiture.