In March 2022, a YouTube video released by People Make Games included various allegations from former employees of Funomena claiming that company co-founder Robin Hunicke was emotionally abusive towards the staff, going as far as to bring up sensitive information about their personal lives during workplace discussions regarding performance. In a now-deleted series of tweets, Hunicke acknowledged and apologized that people had been hurt by her actions, and that she would be taking a break (it's worth noting, however, that she did not respond to any specific contents from the initial report). Two weeks after the report's release, it was stated that Funomena would be shutting down.

However, in May 2022, it was discovered through an additional report that the Funomena employees were unsure if the studio was actually closing or if they had managed to acquire outside funding, as they had started making efforts to gain funds via working as a work-for-hire company for companies that make games in Roblox. The report also revealed that, two days after Hunicke's Twitter apology, she and fellow co-founder Martin Middleton had told the staff that there would be layoffs at the studio, and that it was likely Funomena would have to close due to People Make Games' video making it more difficult to secure outside funding.