Xbox Game Studios hit by layoffs at Compulsion Games and labor lawsuit against Obsidian

Compulsion Games, the Canadian studio behind South of Midnight, has seen a wave of employee departures as Xbox Game Studios undergoes a broad restructuring. Staff across junior and senior roles have announced exits, and the studio’s future remains uncertain pending possible acquisition or independent deals. Microsoft has not issued an official comment.

Obsidian Entertainment, another Xbox Game Studios subsidiary, is facing a class‑action lawsuit in California alleging multiple labor‑law violations, including unpaid wages, missed meal and rest breaks, and improper expense reimbursements. The suit was filed by a former quality‑assurance lead and the company has denied the claims, seeking dismissal. Both incidents spotlight growing workforce and legal challenges within Microsoft’s gaming division.